Topic: Price and Opportunity Cost Skill: Recognition AACSB: Reflective thinking 2) A relative price is A) the number of dollars that must be given up in exchange for the good. Explicit Opportunity Costs are the ones that have a direct monetary impact for instance if a factory has to spend Rs 10000 on electricity its opportunity cost will be the cash expenditure and that is Rs 10000. 0000002121 00000 n 0000013436 00000 n 0000033100 00000 n <<4ae95b90d439f6408367431395052424>]>> 0000026035 00000 n startxref B) also called the money price. 141 0 obj<> endobj 0000023364 00000 n
Explicit costs are direct, out-of-pocket payments such as wages, utilities, materials, or rent. The company can decide to invest the money for advertisement purpose of the particular product at the time of launch in the market.

xref Fixation of Remuneration to a Factor. 0000025199 00000 n
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0000013786 00000 n 0000034019 00000 n 141 46 Opportunity cost measures the impact of making one economic choice instead of another. 0000020887 00000 n So, that the owner could have earned from the rent but if the owner will not consider or provide the office space for rent then there is a loss in business expenses according to economist view point. 0000002666 00000 n 0000046239 00000 n And if they decide to spend the money on advertisement purpose, then the opportunity cost will be the organizations ability to produce commodity with more efficiently.Another example for business organization is that an organization owns a building in which it operates its function and so, it does not have to pay any rent for the office room space and all. But in real life accountant of a business organization cannot provide any loss expenses due to opportunity cost in any accounts.Even though opportunity cost is not considered by the accountants in case of financial accounts and all. When one has to make a decision in between various actions to select only one particular work at a time is called opportunity cost.When faced with a decision, the opportunity cost is the value assigned to the next best choice. In simple words, opportunity cost means choosing or making a best decision from different option. Determination of Relative Prices of goods. 0000012650 00000 n This is because, if a positive amount of both goods are demanded, in equilibrium, the cost of purchasing a good must equal the cost to produce the good. Importance of the Concept of Opportunity Cost. Opportunity costs include both explicit and implicit costs.

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