Oppotunity cost Essay Example | Topics and Well Written Essays - 2000 words

Oppotunity hail - Essay ExampleThe customers may thin k that they are getting a free meal at the appeal of a drink and hence more than people would be attracted towards the shop. This paper briefly explains the phrase TINSTAAFL in terms of opportunity cost.Opportunity cost is the cost of base on balls up the next best choice when making a decision. For example, if an asset such as hood is used for one purpose, the opportunity cost is the look upon of the next best purpose the asset could harbour been used for. Opportunity cost analysis is an important part of a companys decision-making processes, but is not set as an actual cost in any financial statement (Opportunity cost, n. d). Every problem has more than one solution as economics says. While solving problems we normally opt for the best achievable solution. But it is not necessary that our decisions would be always the best because of our inability to analyze or pass judgment problems properly. If an otherwise better p ickaxe was available, the opportunity cost is the benefits we could have received by taking that option.In the current world, there are lots of investment opportunities. Some of them may be risky patch the others might be risk free. For example, consider a person invest his entire extra notes in a savings bank account which provides him an annual interest of below 3%. On the other hand, if that person invests his bullion in fixed deposits, he can earn more than 8% interest. Here the person losing 5% (8 - 3 = 5) and his opportunity costs are 5%In the initial example of the salon owners who offer free lunch, they are not losing any money since they are meet the charges of the meals in the charge of the drink. But at the uniform time they were able to attract more customers because of this cable strategy. In other worlds, the salon owners were able to make more profit by selecting an alternate option for selling their drinks. It should be remembered that if the salon owners do no t offer any free lunch and operate like other shop owners, their sales might be the same as that of the others. But by selecting an alternate option without sacrificing anything, they were able to increase their profit. Any decision that involves a choice amongst deuce or more options has an opportunity cost (Joanne, 2008)Characteristics of Opportunity costThus the opportunity cost is not restricted to financial costs alone. The real cost of output forgone, lost time, or any other benefit that provides utility should also be considered as opportunity costs. Consider a person with $ ampere-second in his hand. He can purchase some shirts or some books or even he can invest it in shares or fixed deposits. If he purchases shirts or books for the money he has, the value of the goods may decrease as time passes and he loses his money as opportunity cost. At the same time if he invests the money in term deposits, he may get more money as time passes. In other words the same money yields negative opportunity cost in the first instance whereas it yields positive opportunity cost in the second instance. Opportunity cost is a key concept in economics because of its worth and value in taking decisions. It is adapted of describing the economic terms like scarcity and choice and moreover it can establish the relationship between the