Question

Define opportunity cost and provide an example.

Answer 1

1. Opportunity cost refers to the cost of the next best alternative use. In other words, it is the value of the next best alternative foregone.
2. For example, a farmer can cultivate both paddy and sugarcane in farmland.
3. If he cultivates paddy, the opportunity cost of paddy output is the amount of sugarcane output given up.
4. Opportunity Cost is also called “Alternative Cost” or Transfer cost.