Opportunity Cost

Opportunity Cost:
the best alternative that we forgo, or give up, when we make a choice or a decision. 

Every decision means giving up something.  Economists are fond of trade-offs as a way of thinking about decision making.  Taking one action usually means giving up something else. 

As the text states, “The full ‘cost’ of making a specific choice includes [the value of] what we give up by not making the best alternative choice.”

Opportunity costs arise because resources are scarce. Scarce means limited.  Resources are scarce because human wants exceed what we can produce from our current resources.

Cost of Production | True or False

Please explain whether the following statements are true or false.

a.  If the owner of a business pays himself no salary, then the accounting cost is zero, but the economic cost is positive.

b.  A firm that has positive accounting profit does not necessarily have positive economic profit.

 

c.  If a firm hires a currently unemployed worker, the opportunity cost of utilizing the worker’s services is zero.