Opportunity costs

Written by Fmi.Online Friday December 9, 2022
An opportunity cost is the economic concept of potential benefits that a company gives up by taking an alternative action. In other words, this is the potential benefit you could have received if you had taken action A instead of action B.  

Explanation :

  Each business transaction and strategy has benefits related to it, but businesses must choose a specific action. By choosing one alternative, companies lose out on the benefits of the other alternatives. In other words, opportunity costs are not physical costs at all. They are theoretical costs or missed opportunities.    

In a nutshell :

 
  • Opportunity cost is the forgone benefit that would have been derived from an option not chosen.
  • To properly evaluate opportunity costs, the costs and benefits of every option available must be considered and weighed against the others.
  • Considering the value of opportunity costs can guide individuals and organizations to more profitable decision making.
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