ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -You need to determine the opportunity cost. Put simply, opportunity cost is what a business owner misses out on when selecting one option over another. It’s a way to quantify the benefits and risks of each option, leading to more profitable decision-making overall.

Detailed explanation-2: -An investor calculates the opportunity cost by comparing the returns of two options. This can be done during the decision-making process by estimating future returns. Alternatively, the opportunity cost can be calculated with hindsight by comparing returns since the decision was made.

Detailed explanation-3: -The concept of opportunity cost is used in decision-making to help individuals and organizations make better choices, primarily by considering the alternatives. Opportunity costs incorporate the cost and benefit of each choice, which can at times be challenging to estimate. Opportunity costs are forward-looking.

Detailed explanation-4: -Opportunity cost can be computed by use of competitive advantage, cost of capital, consumer choice, time management, production possibilities, and career choice. The most popular formula of computing opportunity cost is the return of the most beneficial option less the return of the preferred choice.