Concept Opportunity Cost
- An opportunity cost is what is sacrificed to implement an alternative action, i.e., what is given up to produce or obtain a particular good or service.
- Define Opportunity Cost, we can obtain additional quantities of any desired good only by reducing the potential production of another good.
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Opportunity cost and the problem of scarcity
- The problem of scarcity exists because of limited production.
- Thus, each society must make choices about what to produce and how to produce.
- The opportunity cost of what to produce consists of the goods and services, which sacrificed in order to produce the selected combination of goods and services.
The Formula for Opportunity Cost
Opportunity Cost = (Total Revenue – Economic Profit)
Opportunity Cost = (What One Sacrifice / What One Gain)
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