Answer to Question #259477 in Economics of Enterprise for ajoke

Question

List and explain five positive effects of opportunity cost

Answer 1

The benefits of opportunity cost can be analyzed in two positive dimensions; production and investment

In production:

• Opportunity cost guides producers in the decision of whether or not they should produce by analyzing the financial benefit of producing a good or not thus enables them to make wise production decisions.

• Opportunity cost enables producers to make decisions of what to produce and when by evaluating the benefits incurred if either products are produced. Hence, he is able to decide that product X will yield more than product Y, and ultimately go for it.
• It enables producers to weigh the implicit opportunity cost of missing out on earning a salary if they decide to venture into business and manufacturing. In this case, the returns from business and manufacturing should outweigh the salary for producers to stick to their lane of production without giving up

In investment:

• Opportunity cost is an essential concept for making investments and related decisions whereby, investors are able to assess the benefits in investing in one product as compared to another , and eventually go for the option with higher returns.For instance,an investor in a dilemma between buying land or a house could calculate the costs incurred in both, and eventually go for the decision with lesser investment and more profit.
• It also refers to the missed opportunity of investing in a forgone alternative. Therefore, investors are able to take into account the risks, returns and maturity period therefore decide on the best alternative for their investment.