what is opportunity cost?
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opportunity cost Legal Definition of opportunity cost. : the cost of making an investment that is the difference between the return on one investment and the return on an alternative.
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opportunity cost Definition of opportunity cost. : the added cost of using resources (as for production or speculative investment) that is the difference between the actual value resulting from such use and that of an alternative (such as another use of the same resources or an investment of equal risk but greater return)
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opportunity cost Define opportunity cost: the added cost of using resources (as for production or speculative investment) that is the difference between the actual… the added cost of using resources (as for production or speculative investment) that is the difference between the actual value resulting from…
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- Use an accounting formula for opportunity costs. Many companies use a formula to measure the financial impact of an opportunity cost. The formula is (Contribution margin of choice selected) – (contribution margin of choice not selected). 1  Contribution margin is defined as (sales generated less variable costs incurred).
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opportunity cost opportunity cost. A benefit, profit, or value of something that must be given up to acquire or achieve something else. Since every resource (land, money, time, etc.) can be put to alternative uses, every action, choice, or decision has an associated opportunity cost. Opportunity costs are fundamental costs in economics, and are used in computing cost benefit analysis of a project. Such costs, however, are not recorded in the account books but are recognized in decision making by computing the cash outlays and their resulting profit or loss.
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Definition of 'opportunity cost' The opportunity cost of holding money rather than buying bonds or some other interest-bearing asset is the nominal interest that would otherwise be earned.The opportunity cost of holding money rather than investing it for interest is the nominal interest that would otherwise be earned.An opportunity cost is the cost of not being able to do other ...
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Which is the best example of opportunity cost? A country that chooses to export bananas but not wheat. A country that chooses to invest in manufacturing and agriculture. A country that chooses to specialize in producing paper products. A country that chooses to export all its products. Which is the best example of opportunity cost? A country that chooses to export bananas but not wheat. A country that chooses to invest in manufacturing - 1106502
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Opportunity Cost: Definition & Real World Examples What is Opportunity Cost? The basic economic problem is the issue of scarcity. Because resources are scarce but wants are unlimited, people must make choices. This lesson showcases the most important concept in macroeconomics, which is the concept of opportunity cost.
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The importance of opportunity cost in decision making In this case, the opportunity cost of holding money would be &pound;50. Hence, from the above discussion the concept of the opportunity cost has been explained along with its importance in daily life. It is important to take opportunity cost into account in every kind of decision making.
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- That value can be looked at in terms of benefits and in terms of cost. Value is not always measured in financial terms but sometimes measured in terms of time or enjoyment. The opportunity cost of a choice is what must be given up in order to take an opportunity.
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Specialization in Economics: Definition & Concept Ricardo's justification is based on the concept of opportunity cost. Opportunity cost is the cost of the next best alternative, or what you are giving up to do what you are currently doing. Ricardo explains why opportunity cost is an incentive for rational people and nations to specialize and enter into trade.
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What Are Opportunity Costs? Updated August 01, 2016. Unlike most costs discussed in economics, an opportunity cost doesn't necessarily involve money. The opportunity cost of any action is simply the next best alternative to that action - or put more simply, What you would have done if you didn't make the choice that you did.
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- This $300 opportunity cost includes both the $100 explicit cost of seedand the $200 implicit cost of Farmer Jones giving up teaching banjo lessons to plantwheat. Farmer Jones earns an economic profit of $100 ($400 minus $300), which is lowerthan his accounting profit of $300 ($400 minus $100).he opportunity cost of this capital is whatJosephine could have earned if she had taken the money and invested it elsewhere. If therate of return on her best alternative investment opportunity is 10%, the implicit cost ofcapital is $10,000.
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What Is the Opportunity Cost of Holding Money? The opportunity cost of holding money is the cost that could be realized if money were invested instead of held. In other words, it is the interest rate that money is earning in a chosen investment. Typically, it is the interest rate that is set on a bond, particularly a government bond.
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- It's not the opportunity we chose, but the value of the next best alternative we didn't choose. Every major choice has an opportunity cost, and later on, you'll learn how to calculate it. Lesson Objectives. After you finish this lesson you'll be able to: Define concepts like scarcity and opportunity cost
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- Summary: The opportunity cost of any decision is what is given up as a result of that decision. Opportunity cost includes both explicit costs and implicit costs. The firm’s economic profits are calculated using opportunity costs. Accounting profits are calculated using only explicit costs. Therefore, accounting profits are higher than economic profits.
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Production possibility frontiers Production possibility frontiers. An opportunity cost will usually arise whenever an economic agent chooses between alternative ways of allocating scarce resources. The opportunity cost of such a decision is the value of the next best alternative use of scarce resources. Opportunity cost can be illustrated by using production possibility frontiers (PPFs) which provide a simple, yet powerful tool to illustrate the effects of making an economic choice. A PPF shows all the possible combinations of two goods, or two options available at one point in time.
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Opportunity Cost Return to top. When economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you cannot spend the money on something else.his is not a true cost of attending school at all because whether or not the student attends school, the student still has expenses for room and board. W hen economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource.
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Economics Help?!!? Ok... here is the whole question: What is an opportunity cost? How does the idea relate to the definition of economics? Which of the following decisions would entail the greatest opportunity cost: Allocating a square block in the heart of New York City for a surface parking lot or allocating a square block at... show more Ok... here is the whole question:
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- Principles of Economics/Opportunity Costs. Opportunity Costs. The opportunity cost of a good or of performing an action, also known as the greatest cost, is the lost value of alternate options that could have been chosen, rather than the one that was chosen.
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How to Calculate Opportunity Cost Let's start by looking at it from the corn perspective. The opportunity cost of producing 50 tons of corn is equal to how many tons of beef we could have produced, which of course is 25 tons. Therefore, the opportunity cost is found by solving this equation: 50 tons of corn = 25 tons of beef. What we really want to know is how much beef we could have produced if we choose to produce 1 ton of corn, but the question gave us 50 tons.
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What Are Opportunity Costs? In some cases, the notion of opportunity cost includes only these forgone alternatives, whereas in others the term opportunity cost refers to the total of this type of cost and more typical explicit monetary costs.
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Types of Cost opportunity cost - sometimes synonymous w/ economic cost. 1  unused opportunities treated as costs (since firms not using resources in the most efficient way) 2  monetary transaction may be absent, but opportunity still there.  for example, company owns a building or space that it doesn't use.
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- Opportunity cost is the total sum of what a person or organization has after they compare that sum to what they sacrifice. Opportunity cost is all about the profit a person or organization associates with missed or lost opportunities.
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Opportunity Cost Examples Opportunity cost is the value of something when a particular course of action is chosen. Simply put, opportunity cost is what you must forgo in order to get something. The benefit or value that was given up can refer to decisions in your personal life, in a company, in the economy, in the environment, or on a governmental level.
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Why We Canât Avoid Avoided Cost Why We Can’t Avoid Avoided Cost. 03/01/2010. by Tanya Bodell, Charles River Associates. The concept of opportunity cost is an underpinning of economics; it reflects the value of the next-best alternative of that resource.
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Opportunity Costs  [ edit] Principles of Economics/Opportunity Costs. < Principles of Economics. Opportunity Costs. The opportunity cost of a good or of performing an action, also known as the greatest cost, is the lost value of alternate options that could have been chosen, rather than the one that was chosen.
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- MicroeconomicsTopic 1: “Explain the concept of opportunity cost and explainwhy accounting profits and economic profits are not the same.”Reference: Gregory Mankiw’s Principles of Microeconomics, 2 nd edition, Chapter 1 (p.3-6) and Chapter 13 (p. 270-2).he opportunity cost of this capital is whatJosephine could have earned if she had taken the money and invested it elsewhere. If therate of return on her best alternative investment opportunity is 10%, the implicit cost ofcapital is $10,000.