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Opportunity cost | Economics for B.Com | Educational video | Learn with Himanshu Nandwani | Commerce

Concept of Opportunity Cost:
The concept of opportunity cost is an important concept in business economics and is widely used in the process of decision making. Opportunity cost means the next best alternative that is sacrificed or foregone. The opportunity cost of a product or service is measured in terms of revenue which could have been earned by employing that product or service in some other alternative uses. As Marshal has put it, "the real ultimate cost of anything is the loss of that alternative which must be sacrificed when resources of a given kind are devoted
to a particular object". Economics call it as opportunity cost a concept is of great practical importance.
In the words of Benham , 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. The cost of producing a thing would be determined not by the value of the thing that has been produced but could have been produced by the displaced factors of production.
In other words, the cost of producing a
commodity is fundamentally the sum total of retention prices that have to be paid to the various factors for retaining them in a particular firm or industry, and this must at least be equal to what they can earn in other alternative occupations.

The concept of opportunity cost will be clearly understood from the following examples :

The opportunity cost of the capital investment made in business by the entrepreneur himself is the interest that could have been earned if that capital had been employed in some other business.

The opportunity cost of the time which an entrepreneur devotes to his own business is the amount of remuneration which he could have earned by working in some other occupations.

The opporutnity cost of using a machine to produce one product is the loss of those products which could have been produced from that machine.

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