FAQs on Example: Opportunity Cost

Question 1

1. What is opportunity cost?

Accepted Answer

Ans. Opportunity cost refers to the value of the next best alternative that is forgone when making a decision. It is the cost of choosing one option over another and includes the benefits or profits that could have been gained from the next best alternative.

Question 2

2. How is opportunity cost calculated?

Accepted Answer

Ans. To calculate opportunity cost, you need to compare the benefits or profits of the chosen option with the benefits or profits of the next best alternative. By subtracting the benefits of the next best alternative from the benefits of the chosen option, you can determine the opportunity cost.

Question 3

3. Why is opportunity cost important in decision making?

Accepted Answer

Ans. Opportunity cost is essential in decision making as it helps individuals and businesses assess the true cost of their choices. By considering the value of the forgone alternatives, decision-makers can make more informed and rational decisions, maximizing their resources and minimizing potential losses.

Question 4

4. Can opportunity cost be quantified?

Accepted Answer

Ans. While opportunity cost cannot be directly measured in monetary terms, it can be estimated or approximated. By comparing the potential benefits or profits of different options, decision-makers can assign a relative value to the forgone alternatives and make decisions based on this assessment.

Question 5

5. How does opportunity cost affect resource allocation?

Accepted Answer

Ans. Opportunity cost plays a crucial role in resource allocation. When resources are limited, choosing one option means forgoing the benefits or profits associated with other options. By considering the opportunity cost, decision-makers can allocate resources more efficiently and prioritize options that offer the highest value or benefits.

Example Opportunity Cost Video Lecture - SSC CGL Tier 2 - Study Material,

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