Opportunity costs are other uses of resources Essay

The opportunity cost of any action is defined as the next best alternative to that action. The concept of opportunity costs explain that for every opportunity pursued, there is a cost associated with that opportunity. Every choice has a trade-off because one would usually give up something in favor of the first choice, given one’s limited resources. Limited resources imply scarcity, and a scarce resource used for one thing means that some other thing is foregone. Opportunity costs are usually assessed in terms of money, but it can also be considered in terms of anything that is deemed of value to the company, such as time, production or mechanical output, or any other kind of limited resource. The opportunity cost is usually the difference of value between the first choice and the alternative—for example, the difference between the actual performance of one’s current investment and some other desired investment is considered the opportunity cost of that investment. Another opportunity cost that should be considered includes the cost investing a company’s resources in new capital goods in lieu of its current production of consumer goods. Other kind of opportunities that would have associated opportunity costs include investing, supplying capital, purchasing goods, saving money, and specialization.