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    Thread: what is opportunity cost?

    1. #31
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      Default Re: what is opportunity cost?

      Opportunity cost is actually the meaning of missing the real benefit or profit from a specific business while choosing the other .Suppose a businessmen is having two options to invest his money and make profit and that are by investing in the Forex trading market or by investing in the binary market but as he is having a limited amount of fund ,he may invest in anyone but he sees opportunity is there in both .So he is skipping the profit making from the second option and that is the opportunity cost.

      So we can calculate the Opportunity cost by the following formula

      OC = Total option of profit making - return from option choosed.


    2. #32
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      Default Re: what is opportunity cost?

      Quote Originally Posted by remmy View Post
      what is opportunity cost and how could it be determined?
      opportunity cost is whatever you didn't do because of what you did do. if you decide to get up n' go to work, the opportunity cost may be that you do not get to enjoy staying in bed. if you decide to take maryse out to dinner, the opportunity costs include whatever else you might have been able to do with your time including all the other friends who might have gone out to dinner with you or the money you could've earned by working instead of going out to dinner or the pleasure you could have received by going to a movie rather than dinner. opportunity costs is a recognition that life consists of trade-offs. everything you or a business or a club or a society decided to do eliminates all the things you cannot do because of your decision. the best of all those things you cannot do is the opportunity cost of your decision.


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    4. #33
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      Default Re: what is opportunity cost?

      The Opportunity cost is described to be the estimated return of investments someone or an individual didn't make compared to the expected return of investments you do make.

      lets use our daily life as an example, assuming we render home service to people so, we get called in two different places at the same time, which its impossible to be at two places at a time, so we will have to make a decision between the two work, why we let go of the second job, the to total estimate of the cost of the job we let go compare to the one we go for is is the opportunity cost,
      why are they compares together?
      this happen because on a normal day if the job hasn't come at the same time we could have done the two work. so this is opportunity cost


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    6. #34
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      Default

      Economic Profits and Accounting Profits
      Economists use opportunity costs to understanding the behavior of firms as well as
      individuals. The goal of the firm is to maximize profit. Profit is equal to revenue minus
      cost:
      Profit = Total Revenue - Total Cost
      When economists refer to cost, they mean opportunity cost. The firmís cost of production
      includes explicit costs, like payroll, cost of raw materials and other direct costs. But it
      also includes implicit costs. One of the most important implicit costs is associated with
      the firmís capital. For example, consider Josephine
      Csun, who starts a business with
      $100,000 she inherited from her rich uncle. The opportunity cost of this capital is what
      Josephine could have earned if she had taken the money and invested it elsewhere. If the
      rate of return on her best alternative investment opportunity is 10%, the implicit cost of
      capital is $10,000. This would be added to her other explicit costs of doing business to
      compute the opportunity cost.
      Accountants also compute costs. However, the costs that appear on an accountantís
      balance sheet are only explicit costs. The firmís accounting profit is equal to total
      revenue minus explicit costs. In the above example, an accountant would not count the
      $10,000 in income that Josephine is giving up because she chose to use her $100,000 to
      start her own business rather than investing it elsewhere. However, if Josephine had no
      rich uncle and had to borrow the $100,000 from the bank at 10% interest, the interest
      payment of $10,000 would appear as an explicit cost.
      Economic profit
      is total revenue minus opportunity cost.
      Accounting profit
      is total revenue minus explicit cost.
      Opportunity costs are higher than explicit costs because opportunity costs also include
      implicit costs. As a result, economic profits are lower than accounting profits.
      Accountants do not include implicit costs because they are difficult to measure. An
      accountant does not always know what investment opportunity was given up to use the
      money to start a business, but this does not mean opportunity costs are unimportant.
      Firms and individuals use them to make key decisions.
      For example, consider Farmer Jones who owns a 100-acre farm. Farmer Jones is also a
      well-known banjo player in the area and could earn $20 an hour giving banjo lessons. If
      he plants $100 worth of seed, which takes 10 hours, the wheat produced can be sold for
      $400. An accountant would count the cost of producing wheat as $100 and calculate an
      accounting profit of $300. However, an economist would calculate the cost of producing
      wheat as $300. This $300 opportunity cost includes both the $100 explicit cost of seed
      and the $200 implicit cost of Farmer Jones giving up teaching banjo lessons to plant
      wheat. Farmer Jones earns an economic profit of $100 ($400 minus $300), which is lower
      than his accounting profit of $300 ($400 minus $100). If Farmer Jones could hire alaborer to plant his wheat for $5/hour, he should do so. His economic profit would
      increase even though his explicit costs would rise, because he would now be free to earn
      $20/hour giving banjo lessons.
      Summary:
      The opportunity cost of
      any
      decision is what is given up as a result of that
      decision. Opportunity cost includes both explicit costs and implicit costs. The firmís
      economic profits are calculated using opportunity costs. Accounting profits are calculated
      using only explicit costs. Therefore, accounting profits are higher than economic profits.


    7. #35
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      Default Re: what is opportunity cost?

      The opportunity cost as well refers to as alternative cost is the value not a subsidy of a choice relative to an alternative but a sentiment of opportunity cost is being essential in effort to assure that scarce resources are using a particular proportion. Opportunity costs are not bound to monetary or financial costs, real cost of lost time, happiness or benefit that provides satisfaction should as well be reflect on an opportunity cost and its value in the decision making of everyday life.
      Opportunity costs are fundamental costs in
      economics and are accustomed to calculate cost advantage analysis of a project while these costs, are not recorded in the accounts document but are acknowledge in decision making by reckon the
      cash spending of money and that follows as the result of profit or loss but most thing in life has opportunity costs and in trading it is no separate. This occur unexpectedly many times to new traders who do not understand from experience as a rule causing them to blow out their trading accounts as an activity that one enjoys doing in one's spare time although the trader understand it and at a time traders occurrence start out, they always take the first step into trading without aware the cause of how to choose their trades and these unneeded trades would finally affect the future opportunities to profit and better their average but trades probable to losing trades rather without reckon an event that is likely to occur to success of the trade and as soon as they lose, the equity to be related to make less of a chance to obtain a better trade in the future


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