Question

1. Describe what is meant by “Opportunity Cost” and what is its relationship to “Market Cost”?

Answer 1

Opportunity Cost is the cost of the next best alternative when one of them is chosen as the course of action. In simple terms, opportunity cost is the cost of the opportunity lost when we choose a particular course of action.

For example, A can produce eiher 2cars or 8 bikes. Therefore cost of producing 1 car is 4 bikes as at one point of time he can produce either 1 car or 4 bikes and if he chooses to produce car, he is loosing the opportunity of producing 4 bikes. Therefore opportunity cost for him will be 4 bikes if choses to produce one car.