Answer to Question #259493 in Economics of Enterprise for lucio

Question

List and explain five positive effects of opportunity cost

Answer 1

1. Opportunity cost helps a manufacturer to determine whether to produce or not. He can assess the economic benefit of going for a production activity by comparing it with the option of not producing at all.
2. It enables a manufacturer to decide whether to produce. The opportunity cost of building a product is loss of opportunity in providing another product.
3. A manufacturer may also assess the implicit opportunity cost of missing out on earning a salary income if he works elsewhere. It will give a fair idea of how much his time and resources are worth.
4. The opportunity cost of investing in anything is the missed opportunity of investing in another option. An investor will weigh all his available options and invest in the best possible option.
5. Opportunity cost of investing in a house or land to avoid paying rentals may be a necessary factor for every business or individual. A person can compare interest income he can eatn from the money he will spend to buy the property or office space. If it is substantially more than the rentals he is paying, he can decide to invest in land or house.