The concept of opportunity cost is widely used in economic analysis and planning when making decisions. It characterizes the best of the missed alternatives as a result of choosing a particular option. Opportunity value can be expressed not only in monetary form, but also in kind or in time.
Instructions
Step 1
Use the monetary value of the opportunity cost if you need to predict and estimate the value of a product. For example, certain products do not fully satisfy their consumers due to low supply. In order to increase the supply and thereby satisfy the demand, you can increase the price of the product. This higher price will be the alternative cost of the resource. Firstly, it will characterize how much the production of a product can increase, and secondly, it will determine whether demand will fall due to the increased price.
Step 2
Use the in-kind form of calculating the opportunity cost if you are faced with the choice of purchasing several specific items. To do this, you need to divide the price of one product by the cost of the second. As a result, a relative price will be obtained, which is already expressed in a quantitative comparison. Thus, the price of one good will be expressed in the opportunity cost in the form of the quantity of the other. Comparing the benefits that can be obtained from these values, you can make your choice.
Step 3
Express the opportunity cost in terms of the relative cost of time to determine the benefits of a particular process. To do this, it is necessary to compare a certain period of time for carrying out one process with what can be done in the same period, doing something else. Comparing the usefulness of the time spent, it is possible to predict the activities of not only the enterprise, but also the personal life of a person.
Step 4
Replace opportunity cost for opportunity cost in some calculations. For example, you can compare the option when an enterprise is engaged in the production of products and the provision of services. In order for the firm to be able to increase the provision of services by a certain number without increasing costs, it is necessary to reduce the production of goods by the n-th number. Thus, the opportunity cost will be expressed in relation to services to goods.
