Question

I just want to be sure that you are clear that an opportunity cost is the...

I just want to be sure that you are clear that an opportunity cost is the "cost" of the features or benefits of the purchase that wasn't made. For example, if you choose to buy a saw that can cut wood (which is what you want) over a saw that can cut both wood and metal, your opportunity cost is the loss of that metal-cutting ability. If that isn't a problem or you don't value that option, the opportunity cost is meaningless to the decision. Does that make sense?

Homework Answers

Answer #1

Opportunity costs are all about the options or choices we make and weighing those options / choices before choosing one alternative over other in monetary as well as the non monetary terms.

In effect this is the effect of what we are sacrificing while we opt out one alternative and what we are gaining by accepting this choice.

In this current example, the loss of metal cutting ability is an opportunity loss but in case if there is another saw which have the metal cutting ability - both separate saw (combinely) costs lower than the saw which has both wood cutting and metal cutting ability then it is a gain.

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