Opportunity cost represents the quantum of profit that is let go, when an entity chooses one resource utilization alternative over another. Money costs are the actual cash (or credit) costs that an entity incurs during its business operations.
What is a money cost?
Money cost is the cost of acquiring a good or service with available cash .
What is opportunity cost and money cost?
When economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource . If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you can't spend the money on something else.
What is money cost example?
Money Costs:
It is nothing but the expenses incurred by a firm to produce a commodity . For instance, the cost of producing 200 chairs is Rs. 10000, and then it will be called the money cost of producing 200 chairs.
What is an example of opportunity cost in your life?
A player attends baseball training to be a better player instead of taking a vacation . The opportunity cost was the vacation. Jill decides to take the bus to work instead of driving. It takes her 60 minutes to get there on the bus and driving would have been 40, so her opportunity cost is 20 minutes.
What are the types of opportunity cost?
- Explicit Cost: This is an opportunity cost that involves a money payment and usually a market transaction. ...
- Implicit Cost: This is an opportunity cost that DOES NOT involve a money payment or market transaction.
What are the 4 types of money?
Economists identify four main types of money – commodity, fiat, fiduciary, and commercial . All are very different but have similar functions.
Is opportunity cost a real cost?
Opportunity Cost Definition
Opportunity cost is the value of what you lose when you choose from two or more alternatives. ... “ The real cost of any purchase isn't the actual dollar cost . Rather, it's the opportunity cost—the value of the investment you didn't make, because you used your funds to buy something else.”
What is opportunity cost give example?
The opportunity cost is time spent studying and that money to spend on something else . A farmer chooses to plant wheat; the opportunity cost is planting a different crop, or an alternate use of the resources (land and farm equipment). A commuter takes the train to work instead of driving.
Why is opportunity cost called real cost?
Now, the option which is eventually chosen is obviously the choice , while the other one foregone in order the make this choice is regarded as the real cost. ...
What is real cost and example?
The concept of real costs is an all encompassing idea. ... For example, real costs would include, but not be limited to, production, market analysis, distribution, and advertising . In this process, both total cost and overall value is determined and assessed.
What is real and money cost?
Real cost is the cost of producing a good or service , including the cost of all resources used and the cost of not employing those resources in alternative uses. While Money cost is the cost of acquiring a product or service in available cash.
What is opportunity cost easy definition?
What Is Opportunity Cost? Opportunity costs represent the potential benefits an individual, investor, or business misses out on when choosing one alternative over another . ... Understanding the potential missed opportunities foregone by choosing one investment over another allows for better decision-making.
Why is opportunity cost important?
The concept of Opportunity Cost helps us to choose the best possible option among all the available options . It helps us to use every possible resource tactfully, efficiently and hence, maximize economic profits.
What is opportunity cost diagram?
Definition of Opportunity Cost in Economics. ... The opportunity costs of a product are only the best alternative forgone and not any other alternative. These costs are viewed as the next-best alternative goods that we can produce with the same value of factors which are more or less the same.
What is opportunity cost explain with example?
Opportunity cost is the profit lost when one alternative is selected over another . The concept is useful simply as a reminder to examine all reasonable alternatives before making a decision. For example, you have $1,000,000 and choose to invest it in a product line that will generate a return of 5%.
