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The document discusses opportunity cost, which is the potential benefits missed when choosing one alternative over another. Key elements include resource scarcity, trade-offs, and subjectivity, with a formula provided for calculating opportunity cost. Examples illustrate how opportunity cost applies in business investments and educational decisions.

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17 views8 pages

Project PDF

The document discusses opportunity cost, which is the potential benefits missed when choosing one alternative over another. Key elements include resource scarcity, trade-offs, and subjectivity, with a formula provided for calculating opportunity cost. Examples illustrate how opportunity cost applies in business investments and educational decisions.

Uploaded by

dishamanchanda0077
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ECONOMICS

PROJECT
Presented by-Disha Manchanda

Enrollment No.-08119101724
TOPIC-
OPPORTUNITY COST

SUBMITTED TO-
MS.RUCHI MALHOTRA
BBA-M1A
INTRODUCTION
Opportunity cost represents the potential benefits
that a business, an investor, or an individual
consumer misses out on when choosing one
alternative over another.
Opportunity cost is the forgone benefit that would
have been derived from an option other than one
that was chosen.
This cost of a lost benefit is a strictly internal
measure used for strategic planning; it is not
included in accounting profit or reflected in
external financial reporting.
Key Elements of Opportunity Cost
1. Scarcity of Resources: Resources like time, money, and effort are limited. Choosing one use for these resources often
means sacrificing another.
2. Trade-Offs: Every decision involves a trade-off. Opportunity cost measures the value of the trade-off not chosen.
3. Subjectivity: Opportunity cost is personal. What one person values as a loss may not be the same for another.

Formula for Opportunity Cost


The opportunity cost can be calculated as:
Opportunity Cost=Return on Best Alterntative-Return on Chosen Option
The benefit you miss when you
make a choice
The phrase “opportunity cost is the
opportunity lost” means that whenever you
make a choice, you lose out on the benefits
of the next best alternative. It highlights the
trade-offs involved in decision-making,
emphasizing that every decision carries a
cost: the value of what you didn’t choose.
EXAMPLES
example - 1
1. Business Expansion scenario

A business has $100,000 to invest and must choose between two projects:
1. Expand to a new market, expected to generate $50,000 in annual profit.
2. Upgrade equipment, expected to save $30,000 annually in operating costs.

Opportunity Cost:

If the business chooses to upgrade equipment, the opportunity cost is the foregone
profit from market expansion:
Opportunity Cost = $50,000 - $30,000 = $20,000 per year.
example - 2
Education vs. Immediate Work scenario
A student must decide whether to spend $40,000 on a 2-year MBA program or take a job paying $60,000 per year.

Calculation:
• Cost of MBA: $40,000 in tuition + $120,000 in lost income (2 years) = $160,000 total cost.
• Post-MBA Salary: After completing the program, the student expects to earn $100,000 annually, $40,000 more than the job
offered initially.

Opportunity Cost:

If the student chooses the MBA, the opportunity cost is the lost income during the 2 years:
Opportunity Cost = $120,000.
However, this cost may be offset by higher future earnings.
THANK YOU

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