Opportunity cost or economic opportunity loss is the value of a product forgone to produce or obtain another product. Opportunity cost analysis is an important part of a company's decision-making processes, but is not treated as an actual cost in any financial statement. The next best thing that a person can engage in is referred to as the opportunity cost of doing the best thing and ignoring the next best thing to be done.
Opportunity cost is a key concept in economics because it implies the choice between desirable, yet mutually exclusive results. It has been described as expressing "the basic relationship between scarcity and choice." The notion of opportunity cost plays a crucial part in ensuring that scarce resources are used efficiently. Thus, opportunity costs are not restricted to monetary or financial costs: the real cost of output forgone, lost time, pleasure or any other benefit that provides utility should also be considered. There is always an opportunity cost in a decision that is made either in economics or everyday life.
Examples
A person who invests $10,000 in a stock denies themselves the interest they could have earned by leaving the $10,000 dollars in a bank account instead. The opportunity cost of the decision to invest in stock is the value of the interest.
Chinese ambassador Fu Ying: Western media has demonised China - Telegraph::
are people in West who, for the sake of some amorphous ideal of social order The Tibetan problem is be seen as such: one of social economic, and part of
http://www.telegraph.co.uk/opinion/main.jhtml?xml=/opinion/2008/04/12/do1210.xmlHOME |
An organization that invests $1 million in acquiring a new asset instead of spending that money on maintaining their existing asset portfolio incurs the increased risk of failure of their existing assets. The opportunity cost of the decision to acquire a new asset is the financial security that comes from spending the money on maintaining their existing asset portfolio.
If a city decides to build a hospital on vacant land it owns, the opportunity cost is the value of the benefits forgone of the next best thing which, might have been done with the land and construction funds instead. In building the hospital, the city has forgone the opportunity to build a sports center on that land, or a parking lot, or the ability to sell the land to reduce the city's debt, since those uses tend to be mutually exclusive. Also included in the opportunity cost would be what investments or purchases the private sector would have voluntarily made if it were not taxed to build the hospital. The total opportunity costs of such an action can never be known with certainty (and are sometimes called "hidden costs" or "hidden losses", what has been prevented from being produced cannot be seen or known). Even the possibility of inaction is a lost opportunity (in this example, to preserve the scenery as-is for neighboring areas, perhaps including areas that it itself owns).
Parents. Should they be licenced? [Archive] - JREF Forum::
In the U.S., at least, teenage pregnancy is considered to be a dread condition 1) Who makes the decision between capable and not capable
http://forums.randi.org/archive/index.php/t-15222.htmlHOME |
It can also apply to time; one might use a limited vacation time to travel to a place of cultural enrichment or to do household improvements. Thus the two-week road trip might preclude repairing or painting one's house that year.
In real life an opportunity cost is an ongoing process of people believing that they are losing or gaining the efficiency in certain decision making. This can be related more to psychological aspect either to economical. The reason for that is nobody can predict reality exactly.
 Red Hat's Rough Recovery From CFO Exit
 Windows Live Finds a New, Pre-installed Home
|
Who oppertunity cost is link with economic decision in ideal condition and un ideal condition?