What is opportunity cost easy definition?
Opportunity cost is the forgone benefit that would have been derived from an option not chosen. Considering the value of opportunity costs can guide individuals and organizations to more profitable decision-making.
What is an opportunity cost KIDS definition?
Kids Encyclopedia Facts. Opportunity cost is the value of the next best thing you give up whenever you make a decision. It is “the loss of potential gain from other alternatives when one alternative is chosen”.
How do you find opportunity cost simple example?
How to Calculate Opportunity Cost
- Opportunity Cost = Return on Most Profitable Investment Choice – Return on Investment Chosen to Pursue.
- Opportunity Cost = $80,000 (selling ten cars worth $8,000 each) – $60,000 (selling 5 trucks worth $12,000 each)
- Opportunity Cost = $20,000.
What is opportunity cost and why is it important?
The concept of Opportunity Cost helps us to choose the best possible option among all the available options. It helps us to use every possible resource tactfully, efficiently and hence, maximize economic profits.
Why is it important to understand opportunity cost?
Which of these best describes an opportunity cost?
The correct answer is The difference between the alternative selected and the next best alternative.
What is a real life example of opportunity cost?
A student spends three hours and $20 at the movies the night before an exam. The opportunity cost is time spent studying and that money to spend on something else. A farmer chooses to plant wheat; the opportunity cost is planting a different crop, or an alternate use of the resources (land and farm equipment).
How is opportunity cost important to an individual?
(a)Opportunity cost means the alternative forgone in order to satisfy a particular want. It refers to the satisfaction of one want at the expense of another want. (b)(i)Importance of opportunity cost to individuals: It helps individuals to make judicious use of their scarce resources to satisfy unlimited wants.
How do you explain opportunity cost?
Opportunity cost is the profit lost when one alternative is selected over another. The concept is useful simply as a reminder to examine all reasonable alternatives before making a decision. For example, you have $1,000,000 and choose to invest it in a product line that will generate a return of 5%.
What best describes an opportunity cost?
Opportunity cost is the cost incurred (sacrifice) by choosing one option over the next best alternative (which may be equally desired). Thus, opportunity cost is the cost of pursuing one choice instead of another.
How do you calculate opportunity cost?
One formula to calculate opportunity costs could be the ratio of what you are sacrificing to what you are gaining. If we think about opportunity costs like this, then the formula is very straight forward.
How to calculate opportunity cost?
1. Identify your different options. When faced with a choice between two options,calculate the potential returns of both options. Since you can only
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