09 May 2011
i am solving problems from module. many a times i get stuck in opp. cost calculatin and my solution goes wrong. i have following doubts.
if suppose revenue from alternative option is Rs.500000 and costs are direct wages ;100000 rawmaterial :50000 Rent :50000 power :50000 Depreciation :50000 overhead :50000
then what will be the opportunity cost ? Explainatin with logic will be highly appreciated.
10 May 2011
alternate revenue 500000 cost (350000) in your case profit 150000
this alternate profit known as opportunity cost and in your case it is 150000/-
simple words opportunity cost means foregoing of profit from alternate option due to selection of underlying option.
in your case if you select underlying option than alternate profit that would be coming if alternate option availed will not be come hence it is your opportunity cost.
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