OPPORTUNITY COST

MUSTAFA DAGTEKI
BUSINESS MANAGEMENT, EASTERN GATEWAY COMMUNITY COLLEGE
ECO 102 – MICROECONOMICS
INSTRUCTOR - ALLISON BRODIE
7 MAY 2020
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• During all our daily life we are facing and involving any kind of economic
decision. What are the reasons makes us to buy a specific brand of milk? Why
we get our lawn moved by someone instead of moving ourselves? Why we
cook at home instead of ordering? Why we choose a small car with lower gas
consumption? Why you attend a college?
• Basically, when we try to make a choice, we try to get the most effective
outcome for us. We choose a milk brand because of its taste or we get our lawn
moved by someone because we are making much money than we paid if we
work that time period. Or cooking at home is tastier for us then ordering. We
attend a college to be graduated and be able hired with higher pay rate.
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• But every choice comes with some limitations. If we choose to attend the
college, we are not going to be able to have time for some specific activities we
love to do. Or if we choose a small car with fuel economy, we are not going to
be able to carry our bicycle at the car.
• The all off those decisions that we are facing are the part of microeconomics.
We always going to be trying to maximize our satisfaction with our decisions.
Sometimes higher taste, sometimes higher enjoyment and sometimes higher
income.
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• Life is all about values and priorities. You face trade-offs. Life requires of you
to make choices among mutually exclusive alternatives. Every time you select
something, you forfeit other alternatives and the concomitant benefits. The cost
of something is what you will give up to get it. This is opportunity cost. In sum,
an opportunity cost is the cost of passing up the opportunities that a different
option would have afforded. (Belludi, 2017)
• Opportunity costs represent the benefits an individual, investor or business
misses out on when choosing one alternative over another. (Kenton, 2020)
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• Another way of saying, opportunity cost is the cost of not choosing the second
best alternative. Every time when we make any economic decision we are also
making choice about our future. This is not only valid for individuals but also
valid for all economic decision making bodies.
• Assume that you have 1 hour spare time to enjoy yourself and, you both like
playing computer games and wathing movies. Which one you are going to
choose ? If you choose to play compter games your opportuniny cost will be
watching movie. If you choose to watch movie your opportunity cost will be
playing computer games.
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• If we extend our example in the scale of a manufacturing company with an
investment budget of $ 50 Million. Assume that the company producing face
masks for both healthcare and painting industries with different manufacturing
specifications. The board is trying to decide about the making the investment in
most effective way. They analyze the situation and realized that they have 5
different alternative scenarios about investment with different outcomes. Now
we are going to make a table and show the conditions on each scenario.
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Increase in Production Quantity with New Increase in Sales with New Investment (Per
Investment (Per Month) Month)
Scenario
Industrial Healtcare Industrial
Healtcare
Grade Total Grade Masks Grade Masks Total
Grade Masks
Masks ($2.50/each) ($1.50/each)

1 2,500,000 750,000 3,250,000 $6,250,000 $1,125,000 $7,375,000

2 2,000,000 1,250,000 3,250,000 $5,000,000 $1,875,000 $6,875,000

3 1,500,000 1,750,000 3,250,000 $3,750,000 $2,625,000 $6,375,000

4 1,000,000 2,250,000 3,250,000 $2,500,000 $3,375,000 $5,875,000

5 500,000 2,750,000 3,250,000 $1,250,000 $4,125,000 $5,375,000

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• In each scenario the total production capacity increases by 3,250,000 pieces per
month, but the sales revenue is changing. We assume that company is going to
choose the invest on scenario 1 because it has the highest sales revenue of $
7,375,000. In this case the scenario 2 will be the opportunity cost for investing
in scenario 1. Because scenario 2 has the second highest sales revenue with $
6,875,000.
• The company is trying to make the most effective investment to reach the
highest outcome.
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• Everything in life is about opportunity costs. Every time you say “yes” to a
choice, you are also saying “no” to everything else you may have accomplished
with your time, money, and resources. (Belludi, 2017)
• When choosing one option over another, any lost time, energy, health, or
pleasure is just as much a part of your opportunity cost as money. Opportunity
cost isn’t cut and dry. It varies from person to person. We all value things
differently, even time and money. The opportunity cost of a decision you make
will likely be different than it would be for your friends and family. (Blacklock,
2020)
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• We should take into consideration the best alternative before we make a
decision. In most cases we are not able to compare the all alternatives before
we make the final decision. As stated before, every economic decision has an
opportunity cost. We must carefully select the option which provides us the
highest outcome. Sometimes the outcome of the opportunity cost could be
higher than our decided option’s outcome.
• We should never forget that when we are choosing something we are also
loosing something.
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• In my opinion opportuniy cost is the most effective microeconomic figure
related with our daily life. Even the decision without any economic outcomes
could have opportunity costs. This is the amazing side of the economics, it is
not only related with money, it is all about life…
BIBLIOGRAPHY
• Belludi, N. (2017, August 07). Everything in Life Has an Opportunity Cost.
Retrieved May 07, 2020, from
https://www.rightattitudes.com/2017/08/08/opportunity-cost/
• Blacklock, A. (2020, February 03). How To Calculate Opportunity Cost: The
Hidden Cost Of Every Decision - WealthFit. Retrieved May 07, 2020, from
https://wealthfit.com/money/how-to-calculate-opportunity-cost/
• Kenton, W. (2020, January 29). Understanding Opportunity Cost. Retrieved
May 07, 2020, from https://www.investopedia.com/terms/o/opportunitycost.asp