Opportunity Cost in Business

By Jinsui Y.

What is opportunity cost?

In economic theory, Opportunity cost of one activity is the value of the next-best alternative. For instance, if you spend extra one hour watching TV or playing video game, you will have one less hour to playing volleyball. So, TV is the next-best value. The opportunity cost for TV is the one hour on volleyball court. Also, it can also be measured in dollars. What is the opportunity cost of spending $40 on a pair of jeans? The opportunity cost is that those $40 will not be available to be spend on something else. In a word, Businessmen always want to minimize opportunity cost when they making commercial choice. Opportunity cost is one of the most essential standards in business activity. 

What are the prerequisites for using opportunity cost?

1.      The resources are scare.

2.      The resources have multiple uses.

3.      The resources have been already used efficiently.

4.      The resources are free mobility in market.

How can we use opportunity cost in market?

As the development of modern society, most of us begin to have very busy and fast-paced lives. In that case, time become valuable for us as a scare resources. We could use one hour to take a wonderful dinner, have a meeting in company, watch a fantastic moving, or have a talk with family. We can use it in different ways. Also, many people use it efficiently. Also, it is free mobility in market because of the employment relationship. Therefore, time meets all the prerequisites for using opportunity.

Nowadays, many people did a great job on using opportunity cost about time. For example, McDonald did a good job on it because this company knew that saving time is important for people. Compare to waiting some good and healthy food for a long time, people are willing to get fast food. In that case, getting good and healthy food is the opportunity cost for time. So, McDonald understands the thought of people and get a lot of profits through using opportunity cost.

In a word, opportunity cost is always an essential consideration for consumer and firm before they make commercial choices. So, if a consumer could minimize his/her opportunity cost he/she would get highest degree of satisfaction through little cost. A firm could get largest profits, if it could use opportunity cost in proper way.

Image from:

McDonald's Franchise. Digital image. https://www.franchisehelp.com/franchises/mcdonalds/. Web. 29 March 2016.
Joshua, kennon. 3 Types of Opportunity Cost That Influence Your Investment Portfolio. Digital image.  http://beginnersinvest.about.com/od/Opportunity-Cost/a/3-Types-Of-Opportunity-Cost.htm. Web. 29 March 2016.

Reference:

Joshau, Kenon. about money. 3 Types of Opportunity Cost That Influence Your Investment Portfolio. Web 29 March 2016.