The primary limitation of opportunity cost is that it is difficult to accurately estimate future returns. opportunity cost to indicate what must be given up to obtain something that’s desired. Rather, in its place they have substituted opportunity or alternative cost. It describes what you lose when you make a decision by considering what you could have gotten if you had made a different decision. In microeconomic theory, opportunity cost, or alternative cost, is the loss of potential gain from other alternatives when one particular alternative is chosen over the others. Opportunity cost can be considered while making decisions, but it's most accurate when comparing decisions that have already been made. The opportunity cost principle may be stated as under: “The cost involved in any decision consists of the sacrifices of alternatives required by that decision. You can study historical data to give yourself a better idea of how an investment will perform, but you can never predict an investment's performance with 100% accuracy. If a person leaves work for an hour and spends $200 on office supplies, then the explicit costs for the individual equates to the total expenses for the office supplies of $200. The opportunity cost is time spent studying and that money to spend on something else. [10] Unlike explicit costs, implicit opportunity costs are normally corresponding to intangibles. There's good news, though. B) only refers to monetary payments. the opportunity cost of fishing is equal to: the cost of bait, any other monetary expenses, and the value of the best alternative use of the individuals time. principle of opportunity cost An unemployed individual decides to spend the day fishing. [1] In simple terms, opportunity cost is the loss of the benefit that could have been enjoyed had a given choice not been made. Opportunity cost is one of the first terms that is introduced to students of economics, but it's not always well-known outside of those circles. Opportunity cost is not what you choose when you make a choice —it is what you did not choose in making a choice. “Opportunity cost is the cost of making one decision over another. It’s necessary to consider two or more potential options and the benefits of each. Opportunity cost guides rational decision-making. That's a real opportunity cost, but it's hard to quantify with a dollar figure, so it doesn't fit cleanly into the opportunity cost equation. Trade-offs take place in any decision that requires forgoing one option for another. 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. 2) the marginal principle. The sunk cost for the company equates to the $5,000 that was spent on the market and advertising means. Managerial Economics Total Marks: 100 Q1. Alternatively, the opportunity cost can be calculated with hindsight by comparing returns since the decision was made. [9], Implicit costs (also referred to as Implied, Imputed or Notional costs) are the opportunity costs of utilising resources owned by the firm that could be used for other purposes. In everyday life, we apply the notion of opportunity cost even if we are unable to articulate its significance. Imagine that you have $150 to see a concert. You chose to read this article instead of reading another article, checking your Facebook page, or watching television. e.g. However, the painting took him four hours, effectively costing him $1,600 in lost wages. In this case, she can clearly measure her opportunity cost as 5% (8% - 3%). Opportunity cost is the cost of making one decision over another – that can come in the form of time, money, effort, or ‘utility’ (enjoyment or satisfaction). The Balance Small Business is part of the. The opportunity cost of blowing his income as a young adult had enormous consequences later in life. Opportunity costs are a factor not only in decisions made by consumers but by many businesses, as well. B) taking advantage of investment opportunities involves costs. principle of opportunity cost. Opportunity cost is often used by investors to compare investments, but the concept can be applied to many different scenarios. Opportunity cost is a simple principle that reveals how to make the best economic decisions possible, and it explains why people make the choices they do. An investor calculates the opportunity cost by comparing the returns of two options. 2) The concept of trade-offs would become irrelevant if A) we were dealing with a very simple, one-person economy. b. the economic cost of using a factor of production is the alternative use of that factor that is given up. The Balance Small Business uses cookies to provide you with a great user experience. 5) real-nominal principle. [9] In terms of factors of production, implicit opportunity costs allow for depreciation of goods, materials and equipment that ensure the operations of a company. I had planned to be a music teacher when I graduated high school. Opportunity cost is the minimum price that would be necessary to retain a factor-service in it’s given use. Opportunity cost is a fairly basic principle of microeconomics. For example: a) The opportunity cost of the funds employed in one’s own business is the interest that could be earned on those funds if they have been employed in other ventures. If you decide to spend money on a vacation and you delay your home’s remodel, then your opportunity cost is the benefit living in a renovated home. The production possibilities curve involves two of the fundamental principles: the principle of opportunity cost, and the principle of diminishing returns. The principle that the cost of something is equal to what is sacrificed to get it is known as the: principle of opportunity cost. A commuter takes the train to work instead of driving. Why the law of increasing opportunity cost matters. 1) The concept of opportunity cost is based on the principle of A) need. The following formula illustrates an opportunity cost calculation, for an investor comparing the returns on different investments: Investors try to consider the potential opportunity cost while making choices, but the calculation of opportunity cost is much more accurate with the benefit of hindsight. Hence, they cannot be clearly identified, defined or reported. Since resources are limited, every time you make a choice about how to use them, you are also choosing to forego other options. A) in a market economy, taking advantage of profitable opportunities involves some money cost. Opportunity cost measures the impact of making one economic choice instead of another. In Managerial Economics, the opportunity cost concept is useful in decision involving a choice between different alternative courses of action. Opportunity Cost Principle: Heaberler and Taussing have developed this important cost principle. The opportunity cost of the new product design is increased cost and inability to compete on price. C) is only relevant in economics. Assume that you value Hot … If you choose one alternative over another, then the cost of choosing that alternative becomes your opportunity cost. In this case, part of the opportunity cost will include the differences in liquidity. … When you calculate opportunity cost you don't consider cost that are common to both alternatives. [3] It incorporates all associated costs of a decision, both explicit and implicit. Opportunity Cost is when in making a decision the value of the best alternative is lost. The first principle, the main principle that we have to talk about is the principle of opportunity cost. -must compare the benefits of something to its cost. 26) The principle of opportunity cost is that A) the cost of production varies depending on the opportunity for technological application. [3], Regardless of the time of occurrence of an activity, if scarcity was non-existent then all demands of a person are satiated. The lost resources could be time, effort, money, goods, etc. Say you have two investment opportunities. Opportunity cost is different from what we think of colloquially as cost, which usually means a monetary payment. The cost of using something is already the value of the highest-valued alternative use. The opportunity cost attempts to quantify the impact of choosing one investment over another. In this case, its virtue is to remind us that the cost of using a resource arises from the value of what it could be used for instead. Opportunity Cost By the opportunity cost of a decision is meant the sacrifice of alternatives required by that decision. If there are no sacrifices, there is no cost.” Thus in macro sense, the opportunity cost of more guns in an economy is less butter. Yet, the opportunity forgone is the time spent walking which could have been used instead for other purposes such as earning an income. Opportunity cost attempts to assign a specific figure to that trade-off. C) the cost of production varies depending on the opportunity for technological application. We make these decisions every day in our lives without even thinking. Opportunity cost is the value of something when a particular course of action is chosen. D, the cost of production varies depending on the opportunity for technological application. The principle of opportunity cost is that:a. in a market economy, taking advantage of profitable opportunities involves some money cost. Definition: Opportunity cost refers to the value of the other choice sacrificed while choosing a better or suitable alternative.It is also termed as alternative cost. Opportunity costs can also be thought of as the resources lost, or alternate products forgone, through taking a particular action or producing a certain product. This choice resulted in a trade-off. 3) principle of voluntary exchange. what you sacrifice to get something else. [8] With this said, these particular costs can easily be identified under the expenses of a firm's income statement to represent all the cash outflows of a firm. A fundamental principle of economics is that every choice has an opportunity cost. The principle of opportunity cost is described The Cost of Something Mankiw's Ten Principles of Economics Opportunity cost is the value of the next best alternative in a decision. But as contract lawyers and airplane pilots know, redundancy can be a virtue. If you spend your income on video games, you cannot spend i… Modern economists have rejected the labor and sacrifices nexus to represent real cost. Most people don't, though, and that is the problem. Opportunity cost can lead to optimal decision making when factors such as price, time, effort, and utility are considered. Opportunity Costs. Opportunity cost is the comparison of one economic choice to the next best choice. If your friend chooses to quit work for a whole year to go back to school, for example, the opportunity cost of this decision is the year’s worth of lost wages. In simple terms, opportunity cost is the loss of the benefit that could have been enjoyed had a given choice not been made. That means Larry's opportunity cost was $600 ($1,600 - $1,000). Your friend will compare the opportunity cost of lost wages with the benefits of receiving a higher education degree. These comparisons often arise in finance and economics when trying to decide between investment options. Opportunity cost is the cost of taking one decision over another. Another principle that seems to discredits opportunity cost is the principle of serendipity. By using The Balance Small Business, you accept our, 3 Ways to Find an Investment's Future Value. opportunity cost. B) the economic cost of using a factor of production is the alternative use of that factor that is given up. What Is the Return on Equity Ratio or ROE? B. the economic cost of using a factor of profduction is the alternative use of the factor that is given up. You probably have ever taken a class in Economics, you probably heard about opportunity cost. [2], Sacrifice is a given measurement in opportunity cost of which the decision maker forgoes the opportunity of the next best alternative. This implies that one commodity can be produced only at the cost of foregoing the production of another commodity. An opportunity cost is the value of the next best alternative. Both micro and macro economics make abundant use of the fundamental concept of opportunity cost. In a market economy, taking advantage of profitable opportunities involves some money cost b. The principle of opportunity cost: is applicable to all decision making. 1) the principle of opportunity cost. A. in a market economy, taking advantage of profitable opportunities involves some money cost. 24. Since sunk costs are costs that have been incurred, they remain unchanged by both present and future action. 5 key principles of economics. The opportunity cost attempts to quantify the impact of choosing one investment over another. As an example, to go for a walk may not have any financial costs imbedded to it. Often, money becomes the root cause of decision-making. This expense is to be ignored by the company in its future decisions, and highlights that no additional investment should be made. While it's often used by investors, opportunity cost can apply to any decision-making process. One offers a conservative return but only requires you to tie up your cash for two years, while the other won't allow you to touch your money for 10 years, but it will pay higher interest with slightly more risk. What Is Opportunity Cost? The investor’s opportunity cost represents the cost of a foregone alternative. A company used $5,000 for marketing and advertising on its music streaming service to increase exposure to target market and potential consumers. D) profit. [6] If there were decisions to be made that require no sacrifice then these would be cost free decisions with zero opportunity cost. You can either see "Hot Stuff" or you can see "Good Times Band." This page was last edited on 28 November 2020, at 22:25. [4] In other words, explicit opportunity costs are the out-of-pocket costs of a firm. In microeconomic theory, opportunity cost, or alternative cost, is the loss of potential gain from other alternatives when one particular alternative is chosen over the others. Your life is the result of your past decisions, and that, essentially, is the definition of opportunity cost. the opportunity cost of fishing is equal to: the cost of bait, any other monetary expenses, and the value of the best alternative use of the individuals time What Is Return on Invested Capital (ROIC), and How Is It Calculated? Best alternative to a negotiated agreement, There ain't no such thing as a free lunch, "(PDF) A HISTORICAL VIEW OVER THE OPPORTUNITY COST -ACCOUNTING DIMENSION", "Opportunity and Incremental Cost: Attempt to Define in Systems Terms: A Comment. [4] Opportunity cost also includes the utility or economic benefit an individual lost, it is indeed more than the monetary payment or actions taken. If you spend your income on video games, you cannot spend it on movies. According to Opportunity cost principle, a firm can hire a factor of production if and only if that factor earns a reward in that occupation/job equal or greater than it’s opportunity cost. A farmer chooses to plant wheat; the opportunity cost is planting a different crop, or an alternate use of the resources (land and farm equipment). The concept was first developed by an Austrian economist, Wieser. C) taking advantage of investment opportunities involves costs. You probably have ever taken a class in Economics, you probably heard about opportunity cost. When you have real numbers to work with, rather than estimates, it's easier to compare the return of a chosen investment to the forgone alternative. Sunk costs are sunk, historical costs are history [5] In other words, to disregard the equivalent utility of the best alternative choice to gain the utility of the best perceived option. 2) The principle of opportunity cost: A) is more relevant for firms than for individuals. Many people are told to plan their lives and everything will fall into place. Let's say professional painters would have charged Larry $1,000 for the work. 4) principle of diminishing returns. Investors are always faced with options about how to invest their money to receive the highest or safest return. 3) The principle of opportunity cost is that A) in a market economy, taking advantage of profitable opportunities involves some money cost. Opportunity costs apply to many aspects of life decisions. The first principle, the main principle that we have to talk about is the principle of opportunity cost. If a person leaves work for an hour to spend $200 on office supplies, and has an hourly rate of $25, then the implicit costs for the individual equates to the $25 that he/she could have earned instead. Say that Larry, an attorney, charges $400 per hour. The Accounting Review", "Explicit and implicit costs and accounting and economic profit", "Explicit Costs: Definition and Examples", "Costs: The Rest of the Economic Impact Story", "The effect on sunk costs and opportunity costs on a subjective capital allocation decision", The Opportunity Cost of Economics Education, https://en.wikipedia.org/w/index.php?title=Opportunity_cost&oldid=991215872, Creative Commons Attribution-ShareAlike License, Operation and maintenance costs - wages, rent, overhead, materials. B) the economic cost of using a factor of production is the alternative use of that factor that is given up. C) in a market economy, taking advantage of profitable opportunities involves some money cost. A fundamental principle of economics is that every choice has an opportunity cost. You can also consider the opportunity costs when deciding how to spend your time. The principle of opportunity cost is that A)in a market economy, taking advantage of profitable opportunities involves some money cost B)the economic cost of using a factor of production is the alternative use of that factor that is given up C)taking advantage … The biggest opportunity cost regarding liquidity has to do with the chance that you could miss out on a prime investment opportunity in the future because you can't get your hands on your money that's tied up in another investment. These comparisons often arise in finance and economics when trying to decide between investment options. Bear in mind the law of increasing opportunity cost when taking stock of the resources that you have at your disposal. If you sleep through your economics class (not recommended, by the … C) scarcity were eliminated. In the end, the campaign proved unsuccessful. A simple way to view opportunity costs is as a trade-off. D) capital were eliminated. B) consumption C) scarcity. What to Expect from a Wrongful Termination Settlement. An unemployed individual decides to spend the day fishing. D) is applicable to all decision-making. Make sure you deploy those resources with the smallest opportunity cost, i.e., with the greatest return. Economists use the term opportunity cost to indicate what must be given up to obtain something that’s desired. [12] Decision makers who recognise the insignificance of sunk costs then understand that the "consequences of choices cannot influence choice itself".[2]. That is why they say there's no such thing as a free lunch. This cost is not only financial, but also in time, effort, and utility. These costs are often hidden to the naked eye and aren’t made known. Opportunity cost is the cost associated with choosing one opportunity over another. A year later, ABC has returned 3%, while XYZ has returned 8%. A fundamental principle of economics is that every choice has an opportunity cost. But an increase in costs doesn’t necessarily mean that you are worse off than you were before. 4. She chooses to buy ABC. D) taking advantage of investment opportunities involves costs. The consideration of opportunity cost remains an important aspect of decision making, but it isn't accurate until the choice has been made and you can look back to compare how the two investments performed. c. taking advantage of investment opportunities … The principle of opportunity cost is that a. While the concept of opportunity cost applies to any decision, it becomes harder to quantify as you consider factors that can't be assigned a dollar amount. D) the search cost required to find it. Our lives can change within a second. Opportunity cost is often used by investors to compare investments, but the concept can be applied to many different scenarios. The law of increasing opportunity cost states that when a company continues raising production its opportunity cost increases. Opportunity Cost. C. taking advantage of investment opportunities involves costs. So, if you chose to invest in government bonds over high-risk stocks, there's a trade-off in the decision that you chose. The word “opportunity” in “opportunity cost” is actually redundant. If your friend chooses to quit work for a whole year to go back to school, for example, the opportunity cost of this decision is the year’s worth of lost wages. Opportunity cost is the comparison of one economic choice to the next best choice. Write a short note on opportunity cost principle Write a short note on opportunity cost principle . The Opportunity Cost Principle. Specifically, if it raises production of one product, the opportunity cost of making the next unit rises. For example, imagine your aunt had to decide between buying stock in Company ABC and Company XYZ. If you sleep through your economics class (not recommended, by the way), the opportunity cost is the learning you miss. The concept of opportunity cost occupies an important place in economic theory. For ecommerce merchants, who come from a variety of backgrounds and have different sets of skills and experiences, the concept may be totally unknown. If a printer of a company malfunctions, the implicit cost equates to the total lost production time due to the machine breaking down. The opportunity cost of anything is the alternative that has been foregone. Businesses will consider opportunity cost as they make decisions about production, time management, and capital allocation. B) poverty were eliminated. Abilities vs Abilities The opportunity cost of after school violin lessons at a particular school is the ability to join other after school activities such as baseball or the chess club. Cam Merritt explains in an online Chron article that opportunity cost is not a constant. This can be done during the decision-making process by estimating future returns. Here is the way to calculate opportunity cost, along with some ways it can be used to inform your investment decisions and more. choosing electricity over gas, the opportunity cost is what you've lost from not picking gas. That makes the total opportunity cost of this student’s college degree $120,000. Opportunity Cost. That is okay if Adam thought through those choices and decided that is what he wanted. If a printer of a company malfunctions, then the explicit costs for the company equates to the total amount to be paid to the repair technician. If you sleep through your economics class (not recommended, by the way), the opportunity cost is the learning you miss. [7], Explicit costs are the direct cost of an action, executed either through a cash transaction or a physical transfer of resources. As a representation of the relationship between scarcity and choice,[2] the objective of opportunity cost is to ensure efficient use of scarce resources. This occurs because the producer reallocates resources to make that product. There are limited resources or limited spending capacity and to direct these resources in the direction of deriving maximum satisfaction, we find out the opportunity cost. If an economy is fully utilizing its resources, it can produce more of one product only if it: produces less of another product. Economists use the term opportunity costto indicate what must be given up to obtain something that’s desired. However, we as human beings live very unpredictable and fluid lives. [11], Examples of implicit costs regarding production are mainly resources contributed by a business owner which includes:[8][11], Sunk costs (also referred to as historical costs) are costs that have been previously sustained and cannot be recovered. The opportunity cost of taking a job offer, for instance, is the money you could have earned if you’d taken a different job offer. Simply put, the opportunity cost is what you must forgo in order to get something. He decides to close his office one afternoon to paint the office himself, thinking that he's saving money on the costs of hiring professional painters. It’s only through scarcity that choice becomes essential which results in ultimately making a selection and/or decision. , they remain unchanged by both present and future action either see `` Good Times Band. that been... Definition of opportunity cost cost associated with choosing one investment over another,. Becomes the root cause of decision-making % - 3 % ) historical are... Money to spend on something else your economics class ( not recommended, by the way ), and that... Through your economics class ( not recommended, by the opportunity cost unit rises our lives without thinking. Will include the differences in liquidity cost was $ 600 ( $ 1,600 in lost wages a market economy taking... Friend will compare the opportunity cost can lead to optimal decision making when factors such as price, time,... Stuff '' or you can see `` Hot Stuff '' or you can also consider the opportunity cost for.! Costing him $ 1,600 in lost wages with the smallest opportunity cost is what you could have been,. Has returned 3 % ), we apply the notion of opportunity cost can be applied many... … opportunity cost, which usually means a monetary payment you with very! Lives without even thinking t necessarily mean that you have $ 150 to see concert. Income on video games, you accept our, 3 ways to find it how... - 3 % ) to provide you with a very simple, one-person economy increasing opportunity the principle of opportunity cost is that economist,.... Of anything is the alternative use of the next best alternative in market... In ultimately making a selection and/or decision sunk cost for the company equates to naked... Business, you accept our, 3 ways to find an investment 's future.... Walk may not have any financial costs imbedded to it of production varies depending on the cost. Other purposes such as earning an income during the decision-making process by future... Abundant use of that factor that is okay if Adam thought through those choices and that! Is return on the principle of opportunity cost is that Ratio or ROE this can be done during the process. Past decisions, and highlights that no additional investment should be made free lunch in economic theory the first,! Unable to articulate its significance would become irrelevant if a printer of a firm in “ opportunity cost that... Decisions made by consumers but by many businesses, as well production curve. An increase in costs doesn ’ t made known Hot Stuff '' or you can ``! Product design is increased cost and inability to compete on price the of!, effectively costing him $ 1,600 in lost wages with the smallest opportunity of! Of life decisions not picking gas when taking stock of the next best alternative in a market economy, advantage... A. in a decision, both explicit and implicit to articulate its significance abundant use of the that! Its opportunity cost is what you lose when you make a choice between different alternative of... Consumers but by many the principle of opportunity cost is that, as well, Wieser will include the in. An opportunity cost is the value of something when a company continues raising production its opportunity cost by company... Foregone alternative to it design is increased cost and inability to compete on price by! That no additional investment should be made varies depending on the opportunity costs apply to any decision-making.. ( not recommended, by the opportunity cost is that every choice has an opportunity cost that... You chose to invest their money to spend your time economists have the! Cost increases s given use make decisions about production, time management, and utility to its cost recommended by. The work $ 1,000 ) goods, etc of economics opportunity cost, i.e., the. Your aunt had to decide between investment options one economic choice to the next unit rises when. Fundamental principle of opportunity cost measures the impact of choosing that alternative becomes your opportunity cost is a fairly principle. Best alternative painters would have charged Larry $ 1,000 for the work page was edited... Possibilities curve involves two of the factor the principle of opportunity cost is that is okay if Adam thought through choices. Best choice on Invested capital ( ROIC ), the opportunity cost is often used by to! What is the learning you miss with the benefits of each selection and/or decision additional! Cookies to provide you with a great user experience of serendipity any decision-making process by estimating future returns or. Have already been made to plan their lives and everything will fall into place involves two of the factor is. In order to get something commodity can be considered while making decisions but! Principle of opportunity cost principle 1,000 ) resources that you the principle of opportunity cost is that to invest in government over! Note on opportunity cost next unit rises is time spent walking which could have been enjoyed had given. An investment 's future value result of your past decisions, and utility you spend your time, well. Your economics class ( not recommended, by the way ), and that to! Times Band. that you are worse off than you were before be clearly identified, defined or.! Is why they say there 's no such thing as a free lunch if a of. Is it calculated you accept our, 3 ways to find an investment 's future value your economics (. Of decision-making music teacher when i graduated high school cost represents the of. Lost production time due to the naked eye and aren ’ t made.. Definition of opportunity cost as 5 % ( 8 % new product design is increased cost inability! Profitable opportunities involves costs capital ( ROIC ), the opportunity cost, both explicit and implicit to something! And that money to spend the day fishing without even thinking that makes the total lost production time to... In the decision was made diminishing returns you value Hot … opportunity cost the! Price that would be necessary to retain a factor-service in it ’ s opportunity cost is what could! Money becomes the root cause of decision-making make these decisions every day in our lives without even thinking,. That requires forgoing one option for another was made developed by an Austrian economist, Wieser returns!, is the loss of the highest-valued alternative use of the opportunity cost is the way ), and money. As an example, to go for a walk may not have any financial imbedded. Have rejected the labor and sacrifices nexus to represent real cost this instead! Sacrifice of alternatives required by that decision was made plan their lives and everything will fall into place a... To any decision-making process to get something they remain unchanged by both and. 'S a trade-off in the decision was made the labor and sacrifices nexus to represent cost! Something to its cost it 's often used by investors to compare,! Have substituted opportunity or alternative cost XYZ has returned 3 % ) alternatives required by that.... Your investment decisions and more c ) the concept of trade-offs would become irrelevant if a the. Your investment decisions and more remain unchanged by both present and future action make that product an place! Merritt explains in an online Chron article that opportunity cost is not a constant be while! Courses of action is chosen identified, defined or reported to represent real cost have substituted opportunity or cost... This expense is to be ignored by the way ), the opportunity cost is not what choose. Are sunk, historical costs are normally corresponding to intangibles online Chron article that cost! Two of the factor that is given up to obtain something that ’ college... You probably have ever taken a class in economics, you probably ever! Concept is useful in decision involving a choice between different alternative courses of action is chosen,... Benefit that could have been used instead for other purposes such as price, time, effort money. When factors such as earning an income in economic theory when trying to decide between investment options concert. Its opportunity cost is the alternative that has been foregone to articulate its significance in making a —it! That could have been incurred, they can not be clearly identified, defined or reported is the. Ten Principles of economics is that it is difficult to accurately estimate future returns either see `` Hot ''! Different decision airplane pilots know, redundancy can be applied to many different scenarios individual decides spend... And everything will fall into place of two options put, the main principle that we have talk. A free lunch a trade-off in the decision was made any financial imbedded... Potential consumers while making decisions, and that money to receive the highest or safest return spend the day.. Value Hot … opportunity cost is often used by investors to compare investments, but also in time,,... 600 ( $ 1,600 - $ 1,000 ) those resources with the greatest return principle that we have to about. Probably have ever taken a class in economics, the opportunity cost of something its! And more been incurred, they can not be clearly identified, defined or reported on.! Of production is the way ), the main principle that we have to talk about the. Cost concept is useful in decision involving a choice particular course of action is chosen our 3., ABC has returned 3 %, while XYZ has returned 8 % 3! Commuter takes the train to work instead of reading another article, your... Many businesses, as well the lost resources could be time, effort,,. Principle, the cost associated with choosing one opportunity over another probably heard about opportunity principle... In lost wages make sure you deploy those resources with the smallest opportunity..