Question

Write short notes on opportunity costs.

Answer 1

1. Opportunity cost means the benefit sacrificed for selecting a particular course of action.
2. It is the maximum advantage that could be obtained if the resource was put to an alternative use.
3. The opportunity cost of producing one commodity A is the amount of B that must be sacrificed in order to use resources to produce A rather than B.
4. In other words, 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.
5. Opportunity cost is not recorded in books of accounts.
6. It is useful in comparing alternatives and making decisions.