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1. The concept is not applicable to factors of production which are specific, means, factors which can be put to only one use. A particular factor has no alternative use. Its transfer cost or opportunity cost, therefore, is zero as no sacrifice is involved yet payments for the use of such specific or particular factors are included in costs of production.
2. The concept of Opportunity cost is based on the assumption of perfect competition and perfect mobility of the factors of production which is found in real life. Factors of production are not so easily mobile between different occupations and regions; a number of causes hinder their mobility. Hence the concept of opportunity cost does not fit well with reality.

The concept of opportunity cost has a wide application in economic theory. It helps us in understanding the relative prices of different products. The opportunity cost of the factors of production used for the manufacture of superfine cloth is high as compared to the opportunity cost of the factors used in the production of match box. Hence, the price of superfine cloth is higher than that of the match box.

Second, Modern theory of rent is also based on the concept of opportunity cost explained and described as transfer earning of the factors of production.

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