ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Therefore, to determine opportunity cost, a company or investor must project the outcome and forecast the financial impact. This includes projecting sales numbers, market penetration, customer demographics, manufacturing costs, customer returns, and seasonality.

Detailed explanation-2: -Opportunity cost is calculated by applying the following formula: Opportunity Cost = Return on Most Profitable Investment Choice-Return on Investment Chosen to Pursue.

Detailed explanation-3: -Opportunity cost represents the cost of a foregone alternative. In other words, it’s the money, time, or other resources you give up when you choose option A instead of option B. The goal is to assign a number value to that cost, such as a dollar amount or percentage, so you can make a better choice.

Detailed explanation-4: -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.

Detailed explanation-5: -The fact that economic profit will measure the cash flow of a business and the accounting profit will measure the profit based on accrual. Accounting profit doesn’t consider opportunity costs, but economic profit does consider it.