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What is Opportunity Cost?

Here we Under the Concept of Opportunity Cost in detailed.

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What is Opportunity Cost?
The concept of opportunity cost is very useful in economic analysis. It is developed by the Austrian economists. It is based on the view that wants are unlimited but the resources are strictly limited and have alternative uses.
Opportunity cost of any commodity is the next best alternative commodity that is sacrificed. For example, the factors of production which are used for the manufacture of a car might have been used for production of machinery. Hence the opportunity cost of production of a car is the output of machinery which could have been produced with the same amount of factors but has not been produced. Thus opportunity cost of anything is the alternative that has been foregone.
When a person decides to work overtime for extra money, the cost of the thing which he buys with the extra money is the leisure which he has given up. A farmer who is producing wheat can also produce potatoes with the same factors. The opportunity cost of wheat is the output of potatoes given up.
Different Economists have given different definitions of Opportunity cost as follows:
According to Professor Marshall, "The real ultimate cost of anything is the loss of that alternative which must be sacrificed when resources of any kind are devoted to a particular object."
It follows that what labour would get in one employment would depend on what it can get elsewhere, what rate of interest capital would be entitled in one industry would depend on what it can earn. In this way, actual cost is the cost of the displaced alternative. The cost of producing a thing would be determined by the value of the thing that has not been produced, but could have been produced by the same factors of production.
According to Professor Benham, "The opportunity cost of anything is the next best alternative that could be produced instead by the same factors or by an equivalent group of factors, costing the same amount of money."
Now we will analyse the Assumptions of Opportunity cost-
The concept of opportunity cost is based on the following assumptions:
  1. Resources are scarce, but they have alternative uses.
  2. There is perfect competition and perfect mobility of factors as between different uses and regions.
  3. Resources are fully employed.

What is Opportunity Cost?
Resources are scarce
Alternative uses
Resources are fully employed
Opportunity Cost.
Tech writer at NewsandStory