What is opportunity cost of production

A firm's costs show the cost of the resources it uses in the production process. Unlike production function, which takes into account only the physical volumes of capital and labor, when calculating costs, resource prices are also taken into account. The price per unit of labor is taken wage employee. The price per unit of capital refers to the rental price for buildings and structures that the company uses.

Opportunity costs.

First of all, the company is interested in the opportunity costs of doing business.

Opportunity Cost, or opportunity cost, shows the cost of the best alternative that must be given up when taking an action.

For example, let the reader take 1 hour to read this textbook. What else could be done during this period of time? Let's try to evaluate various options spending time in conventional units of utility (pleasure or displeasure), say, in scraps. Instead of reading a textbook on business economics, you could:

- take a walk in the park - 100 scraps;
- sleep - 50 scraps;
- play tennis - 200 scraps;
- sit in a cafe with a friend - 80 scraps.

The best alternative in our example is playing tennis (providing the highest pleasure to our consumer). This means that if a person chooses to read a textbook on corporate economics, he cannot play tennis at the same time. Therefore, he is forced to abandon this option, which has the greatest value for him (but after reading the textbook, otherwise he would have chosen tennis rather than the textbook). The opportunity cost of reading the textbook will thus be 200 scraps.

Not all individual actions have opportunity costs. Opportunity costs imply that a person has a choice to make one decision or another. However, a number of expenses, such as food costs, clothing and shoes, housing costs and some other essentials, always exist, regardless of the scenario. Such expenses are not included in opportunity costs, since the individual cannot avoid them in any variant of his behavior.

Opportunity costs play an important role in the life of a company.

Costs are the monetary expression of costs production factors necessary for the enterprise to carry out its production and commercial activities. They find their expression in product cost indicators, which characterize in monetary terms all material costs and labor costs that are necessary for the production and sale of products. The quantity of a product that a company can offer on the market depends, on the one hand, on the level of costs (expenses) for its production and on the price at which the product will be sold on the market, on the other. It follows from this that knowledge of the costs of production and sale of goods is one of the most important conditions effective management of the enterprise.

Let's consider the company's costs in the process of production and marketing of goods and services. Let us pay attention to explicit and opportunity costs, since both of them must be taken into account by the company in all activities.

TO explicit include all costs of the company to pay for the factors of production used. This includes payment for labor in the form of wages, land - in the form of rent, capital - in the form of expenses for basic and revolving funds, as well as payment for the entrepreneurial abilities of production and sales organizers. The sum of all explicit costs acts as the cost of production.

However, the amount of production costs, if only explicit costs are included in them, may be underestimated, and profits, accordingly, will be overestimated. For a more accurate picture, so that the company’s decision to start or develop production is justified, costs should include not only explicit, but also implicit (alternative) costs. The latter arise due to the possibility of choosing between certain economic decisions. For example, a business owner can spend available money in different ways: direct them to expand production or spend them on personal consumption.

Alternative in in this case will be called the costs of using resources that are the property of the company. These costs are not included in the firm's payments to other organizations or individuals. For example, the owner of the land does not pay rent, however, by cultivating the land on his own, he thereby refuses to rent it out and the additional income arising in connection with this. A self-employed worker is not hired by a factory or paid there. Finally, an entrepreneur who has invested his money in production cannot put it in a bank and receive loan (bank) interest.

What might a firm's opportunity costs consist of?

Firstly, the company always owns its own capital, which is spent on production. This money could be loaned out and generate income in the form of interest. Therefore, interest on equity capital is one of the main types of opportunity costs.

Secondly, the company may own some natural resources (for example, a piece of land), which could be leased and also generate income. But since the firm itself used these factors of production, the rent for the firm's resources is also included in its opportunity costs.

Thirdly, opportunity costs may arise if the owner of the company himself takes part in its management. In this case, he does not have to pay himself a salary, but the opportunity costs of using his ability to work (organizational and (or) entrepreneurial talents) exist. After all, he could work in some other place, receiving some kind of salary or profit. Since, acting as a manager in his company, he does not receive this additional income, and this money is also included in the amount of implicit costs.

All these lost incomes - interest on capital, rent for resources and alternative income entrepreneur - constitute the total value of opportunity costs.

Taking into account not only explicit, but also opportunity costs allows for a more accurate assessment of the company's profit.

If accounting (explicit) costs are subtracted from revenue (the amount of money a firm receives from the sale of a manufactured product), the result is accounting profit. This is the entire amount of money that remains with the owner of the company after he has paid for all purchased resources (workers and managers, suppliers of intermediate goods, owners natural resources).

But, of course, these accounting profits (no matter how large or small they may be) say nothing about the profitability of the firm's activities until the opportunity costs of using the firm's own resources are taken into account.

Economic profit is defined as the difference between income from sales of products and all (explicit and opportunity) costs.

Normal profit is a profit equal to the opportunity costs invested in the business by the owner of the company. For example, having invested 1000 rubles in a business, he will receive a profit of 5%. If at this time interest rate is also 5%, then the profit received will be normal, reflecting the opportunity costs associated with the possibility of investing 1000 rubles. to the bank.

Of course, there is actually no division of the resulting accounting profit into implicit costs and economic profit. All accounting profit is the income of the owner, and he can dispose of it as he pleases. Therefore, there is no point in dividing the received amount into parts.

But, nevertheless, in this total income there are two components that have different meanings. Implicit costs represent the income of the entrepreneur as the owner of resources. He would have received this income if he had used the resources not to create his own firm, but to provide them to other firms. And economic profit is the income of the entrepreneur precisely as the owner of the company itself. He receives this profit only because he decided to create a company and not give his resources “into the wrong hands.”

Problem illustrating the concept

Let's assume that a machine-building enterprise itself produces one of the parts for its assembly production at a cost of 5,100 rubles, with variable costs equal to 3,900 rubles, and fixed costs - 1,200 rubles. What decision will the enterprise make if another enterprise offers the first this part for 4,600 rubles?

Solution.

Despite the apparent attractiveness and profitability of the proposal received, solving the problem is difficult. To make a decision you must:

1) compare not the final values (5100 and 4600 rubles), but 3900 and 4600 rubles, since fixed costs the first enterprise does not depend on external purchases or in-house production of this part;
2) determine how profitable it will be to use the released production equipment of the first enterprise for the production of other parts if the part in question is purchased externally.

In the first comparison, if domestic production is preferred, the opportunity costs of using Money enterprises for the purchase of a unit of this part (compared to their own production) are equal to 4,600 rubles. The possibility of a second comparison is not taken into account here. In the case of the second comparison, the decision to transfer production equipment to the production of other parts will be profitable only if the increase in profit covers the total losses from purchasing this part externally - 700 rubles. (4600 - 3900 rubles), multiplied by the number of parts previously produced on our own equipment. If it is really profitable to transfer equipment to the production of other parts, their total economic costs will consist of ordinary production costs (fixed and variable) and “total losses” (opportunity costs). In a particular case, with an equal share of profit in the price and the same number of parts produced, “real profitability” is achieved if the value variable costs“other parts” less than RUB 3,200. (3900 - 700 rub.).

Case Study

Although economic definition costs may seem strange at first glance, an error in applying this approach can lead to serious problems. Company Apple Computer I felt the severe consequences of such a mistake. Apple ordered millions of dynamic memory chips, essential components of personal computers, for $38 apiece. Even before it was able to use up its entire stock of microcircuits, the price for them dropped significantly and amounted to $23 apiece.

The chain of these chips was an important component of the cost of the entire computer, and Apple decided to set prices for its machines based on the price of microchips. But what price should we start from? The concept of opportunity costs provides a clear answer to this question. The economic costs (the sum of the opportunity costs of all the factors of production used) of using microcircuits were equal to $23 per piece, i.e. if the company Apple If I didn’t use these chips when assembling my computers, I could sell them to another company ( best option use) at the current market price. On the other hand, as the supply of chips was consumed during the production process, the company had to buy chips at new price. Thus, the economic cost will be equal to the current market price of the chips, not the one at Apple bought them.

Managers Apple did not use economic measurement of costs. Instead, they priced computers based on the purchase price of the chips, i.e. $38 each. As a result, memory in computers Apple has become very expensive. The market responded to this in the following way: consumers began to buy computers with a minimum amount of memory. They then bought additional memory modules from other companies and installed them. As a result of an error in determining economic costs, the company's profits began to decline rapidly, and the chips remained unsold.

Opportunity Cost- opportunity cost or opportunity cost - an economic term denoting lost profit (in a particular case - profit, income) as a result of choosing one of the alternative options for using resources and, thereby, refusing other opportunities. The value of opportunity costs is related to the utility of the most valuable alternative that was not realized. Opportunity costs are characterized by their inseparability from decision-making (actions), subjectivity, and expectedness at the time the action is taken.

Opportunity costs are not expenses in the accounting sense, they are just an economic construct for accounting for lost alternatives.

A simple example is given by the famous joke about a tailor who dreamed of becoming English king and at the same time “I would be a little richer, because I would sew a little more.” However, since it is impossible to be a king and a tailor at the same time, the income from the tailoring business will be lost. They should be considered the cost of lost opportunity when ascending to the throne. If you remain a tailor, then the income from the royal position will be lost, which will be the cost of lost opportunity in this case.

Explicit costs- These are opportunity costs that take the form of direct (monetary) payments for factors of production. These are: payment of wages, interest to the bank, fees to managers, payment to providers of financial and other services, payment of transportation costs and much more. But costs are not limited only to the obvious costs incurred by the enterprise. There are also implicit costs. These include the opportunity costs of resources directly from the owners of the enterprise themselves. They are not fixed in contracts and therefore remain unreceived in material form. For example, steel used to make weapons cannot be used to make cars. Typically, enterprises do not reflect implicit costs in their financial statements, but this does not make them any less.

F. Wieser's idea of opportunity costs

The idea of opportunity costs belongs to Friedrich Wieser, who identified it in 1879 as the idea of using limited resources and initiated criticism of the cost concept contained in the labor theory of value.

The essence of F. Wieser's idea of opportunity costs is that the real cost of any produced good is the lost utility of other goods that could have been produced with the help of resources used for already produced goods. In this sense, the costs of production of any goods represent potentially lost other, unreleased useful goods. F. Wieser. Determined the value of resource costs in terms of the maximum possible return on production. If too much is produced in one direction, less may be produced in another, and this will be felt more strongly than the gain from overproduction. Satisfying needs with an increasing production of some goods and refusing additional quantities of other goods, one has to pay for the choice made a correspondingly increasing price, expressed in these unreleased goods. This is the meaning of opportunity costs, called Wieser's law.

Nobel laureate in the field of modern economics V.V. Leontiev proposed an interpretation of Wieser's law in terms of the relative economic efficiency of the distribution of limited resources. It is embodied in his scientific and practical ideas, which form the basis of the “input-output” economic model. Leontiev notes that the size and distribution of any mass of products that seems most effective for achieving a given economic goal may turn out to be completely insufficient from the point of view of another goal.

The question of the economic goal, of what, how and for whom to produce, acquires practical meaning in the extent of rights and responsibility for the choice of one or another alternative, which determines the proportions and directions of distribution of limited resources. The right to choose a priority among alternatives is at the same time the obligation to compensate for opportunity costs, to pay that increasing price for diverting resources to some priorities and abandoning others.

In any case, the choice of some economic good involves giving up another economic good.

If a schoolgirl, whose parents gave her a certain amount of money, would like to go to a disco and update her outfit, but there is not enough money for both, then she has to sacrifice something. Let's assume that a schoolgirl decides to have fun with her friends at a disco. The refusal of a new outfit in this case was the price of her choice, or the alternative costs of the choice made.

If the company's management decides to purchase five expensive cars to enhance the prestige of its president and vice presidents, and refuses to purchase the latest equipment, then new equipment is opportunity costs purchased cars.

In both cases, the opportunity cost is the product not purchased that is rejected by the buyer who chooses another product or service.

Opportunity costs can also have a direct monetary value.

Let's assume that a graduate high school I decided to enroll in a paid department at an economics university. What would be the opportunity cost of training him? To determine them, it is necessary to take into account only those cash expenses that are associated with paid training and which could have alternative uses. These expenses should include: the tuition fee itself, the cost of purchasing textbooks, travel expenses to educational institution and home. If the student were not studying at a paid department of the university, he could use this money in other ways, for example, on travel. At the same time, some expenses (for food, buying clothes, hairdresser services, etc.) should not be included in opportunity costs, since they do not depend on whether our hero is studying or traveling.

Opportunity Cost Principle can be extended to the economy as a whole. For example, the government must calculate the opportunity costs of decisions in the field of rearmament of the army, increased costs of maintaining the state apparatus, etc. In practice, any economic entity has the opportunity to choose between several options for satisfying certain needs.

Our schoolgirl had a wide range of choices with her money: she could contribute money to a class trip on an excursion, go to a water park with her younger brother, etc. However, from her point of view, the best of the rejected options is refusing a new outfit. Both the management of the company and the government of the country may face a similar multivariate choice.

Therefore, the opportunity cost of choosing a particular good or service will not be all the goods or services that must be given up in order to acquire the good or service that is preferred.

The choice is made not according to the principle - “this product/service or all others”, but “this product/service or the next, best one, from the point of view of the one who makes the choice.”

Hence, opportunity cost are determined THE BEST OF THE REJECTED OPTIONS.

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The term was first introduced by the economist of the Austrian school Friedrich von Wieser in 1914 in his work “The Theory of Social Economy”.

Thus, opportunity cost is the cost of anything measured in terms of the value of the next best alternative that is foregone. This is a key concept in economics, ensuring the most rational and efficient use limited resources. These costs do not always mean financial costs. They also mean the real cost of the product foregone, time lost, pleasure lost, or any other benefit that provides utility.

There are many examples of opportunity costs. Every person is faced with the need to make a choice between available options every day. For example, a person who wants to watch two interesting television programs on TV at once, broadcast simultaneously on different channels, but does not have the opportunity to record one of them, will be forced to watch only one program. Thus, his opportunity cost would be not being able to watch one of the programs. Even if he has the opportunity to record one of the programs while watching another, then even in this case there will be an opportunity cost equal to the time spent watching the program.

Opportunity costs can also be assessed during the decision-making process in economic activity. For example, if on farming If you can produce 200 tons of barley or 400 tons of rye, then the opportunity cost of producing 200 tons of barley will be 400 tons of wheat, which has to be abandoned.

To figure out how to estimate opportunity costs, take Robinson on a desert island as an example. Let's say that near his hut he grows two crops: potatoes and corn. Land plot limited: on one side - the ocean, on the other - the jungle, on the third - rocks, on the fourth - Robinson's hut. Robinson decides to increase corn production. And he can do this in only one way: to increase the area allocated for corn, reducing the area occupied by potatoes. The opportunity cost of producing each subsequent ear of corn in this case can be expressed in potato tubers, which Robinson lost by using the potato land resource to grow corn.

But this example is for two products. But what if there are dozens, hundreds, thousands of them? Then money comes to the rescue, through which all other goods are measured.

Opportunity costs can act as the difference between the profit that could be obtained under the most profitable of all alternative ways use of resources, and the actual profit received.

But not all entrepreneurial costs act as opportunity costs. With any method of using resources, the costs that the producer bears unconditionally (for example, registering an enterprise, rent, etc.) are not alternative. These non-opportunity costs do not participate in the economic choice process.

Opportunity costs that firms face include payments to workers, investors, and natural resource owners. All these payments are made to attract factors of production, diverting them from alternative uses.

From an economic point of view, opportunity costs can be divided into two groups: “explicit” and “implicit”.

Explicit costs are opportunity costs that take the form of cash payments to suppliers of factors of production and intermediate goods.

Explicit costs include: workers' wages (cash payments to workers as suppliers of production factors - work force); cash costs for the purchase or payment for the rental of machines, machinery, equipment, buildings, structures (cash payments to capital suppliers); payment of transportation costs; utility bills (electricity, gas, water); payment for services of banks and insurance companies; payment to suppliers material resources(raw materials, semi-finished products, components).

Implicit costs are the opportunity costs of using resources owned by the company itself, i.e. unpaid expenses.

Implicit costs can be represented as:

1. Cash payments that a company could receive if it used its resources more profitably. This may also include lost profits (“lost opportunity costs”); the wages that an entrepreneur could earn by working somewhere else; interest on capital invested in securities; rent payments for land.
2. Normal profit as the minimum remuneration to an entrepreneur that keeps him in the chosen industry.

For example, an entrepreneur engaged in the production of fountain pens considers it sufficient for himself to receive a normal profit of 15% of the invested capital. And if the production of fountain pens gives the entrepreneur less than normal profit, then he will move his capital to industries that give at least normal profit.

3. For the owner of capital, implicit costs are the profit that he could have received by investing his capital not in this, but in some other business (enterprise). For the peasant - the owner of the land - such implicit costs will be rent, which he could get by renting out his land. For an entrepreneur (including a person engaged in ordinary labor activity) the implicit costs will be the wages that he could have received (for the same time) working for hire in some company or enterprise.

Thus, the production costs of Western economic theory the income of the entrepreneur is included (Marx called it the average profit on invested capital). Moreover, such income is considered as a payment for risk, which rewards the entrepreneur and encourages him to keep his financial assets within the boundaries of this enterprise and not divert them for other purposes.

Examples of opportunity costs:

A person who has $15 can buy a CD or a shirt. If he buys a shirt, the opportunity cost is a CD and if he buys a CD, the opportunity cost is a shirt. If there are more choices than two, the opportunity cost is still not just one item, never all of them.

When a person comes to the store and is forced to choose between a steak, which costs $20, and trout, which costs $40. By choosing the more expensive trout, the opportunity cost would be two steaks that could have been purchased with the money spent. And, on the contrary, by choosing a steak, the cost will be 0.5 servings of trout.

Opportunity costs are assessed not only in monetary or substantive terms, but also in terms of anything that is significant. For example, a person who wishes to watch each of two television programs broadcast simultaneously and is unable to record one of them, and therefore can only watch one of the desired programs. Of course, if a person records one program while watching another, the opportunity cost is the time the person spends watching the first program rather than the second. In a store situation, the customer's opportunity cost of ordering both meals could be twofold - the extra $40 to buy the second meal, and his reputation as he would be thought of as rich enough to spend that much on food . Another option. The family might decide to use a short vacation period to visit Disneyland instead of making home improvements. The opportunity cost here is covered by having happier children, so a bath remodel will have to wait for another day.

Consideration of opportunity cost is one of the main differences between the concept of economic value and accounting cost. Estimating opportunity costs is fundamental to assessing the true cost of any course of action.

I note that opportunity costs are not the sum of available alternatives if these alternatives are, in turn, mutually exclusive.

Opportunity costs are sometimes difficult to imagine as a certain number of rubles or dollars. In the context of a widely and dynamically changing economic situation hard to choose The best way use of the available resource. In a market economy, this is done by the entrepreneur himself as the organizer of production. Based on his experience and intuition, he determines the effect of a particular direction of application of the resource. At the same time, income from lost opportunities (and therefore the size of opportunity costs) is always hypothetical.

The accounting concept completely ignores the time factor. It estimates costs based on the results of already completed transactions. And when determining opportunity costs, it is important to understand that the effect of any option for using a resource can manifest itself in different periods. The choice of an alternative is often associated with the answer to the question of what to prefer: quick profit at the cost of future losses or current losses for the sake of profit in the future? On the one hand, this makes it difficult to estimate costs. On the other hand, the complexity of the analysis results in the advantage of a more thorough consideration of all aspects of the future project.

The concept of opportunity cost is a powerful tool in making effective economic decisions. The assessment of resource costs is carried out here on the basis of comparison with the best of the competitors, the most effective method use of rare resources. The centrally managed system deprived economic entities of independence in making strategic decisions. This means the possibility of choosing better alternatives. Themselves central authorities even with the help of computers were unable to calculate optimal structure production for the country. They could not find answers to the two main questions of economics: “what to produce?” and “how to produce?”. Therefore, under these conditions, the result of opportunity costs was often commodity shortages and low-quality products.

For a market economy, choice and alternativeness are integral features. Resources must be used optimally, then they will bring maximum profit. The saturation of goods and services that consumers need is a sustainable result of the opportunity costs of the market system.

Workshop.

Let's assume you have 800 rubles. If you decide to spend these 800 rubles. for a football ticket, what is your opportunity cost of going to the football match?

So in order to know the value of opportunity costs, you need to know the possible uses of these 800 rubles. For example, this amount could be spent on clothes costing 800 rubles, or on products whose total cost is also 800 rubles, etc. In this situation, we are faced with a choice and decided to spend 800 rubles. for a football ticket. The cost of goods purchased is the opportunity cost, equal to the cost of the services we sacrifice to choose other services. Opportunity costs in in this example- this is the cost of goods and services that we gave up in order to purchase a football ticket.

choice limited resource economic

Opportunity cost is a term that refers to the lost profit when one of the existing alternatives is chosen instead of another. The value of the lost benefit is measured by the utility of the most valuable alternative that was not chosen instead of the other. Thus, opportunity costs occur wherever a rational decision must be made and there is a need to choose between available options. Opportunity cost is thus the cost of any one, measured in terms of the value of the next best alternative, that is foregone. This is a key concept in economics, ensuring the most rational and efficient use of limited resources. These costs do not always mean financial costs. They also mean the real cost of the product foregone, time lost, pleasure lost, or any other benefit that provides utility.

Opportunity costs can also be assessed during the decision-making process in business activities. For example, if a farm can produce 200 tons of barley or 400 tons of rye, then the opportunity cost of producing 200 tons of barley will be 400 tons of wheat, which must be abandoned.

To figure out how to estimate opportunity costs, take Robinson on a desert island as an example. Let's say that near his hut he grows two crops: potatoes and corn. The plot of land is limited: on one side there is the ocean, on the other the jungle, on the third - rocks, on the fourth - Robinson's hut. Robinson decides to increase corn production. And he can do this in only one way: to increase the area allocated for corn, reducing the area occupied by potatoes. The opportunity cost of producing each subsequent ear of corn in this case can be expressed in potato tubers, which Robinson lost by using the potato land resource to grow corn.

But this example is for two products. But what if there are dozens, hundreds, thousands of them? Then money comes to the rescue, through which all other goods are measured.

Opportunity costs can be the difference between the profit that could be obtained from the most profitable of all alternative uses of resources and the profit actually obtained.

From an economic point of view, opportunity costs can be divided into two groups: “explicit” and “implicit”.

Explicit costs are opportunity costs that take the form of cash payments to suppliers of factors of production and intermediate goods.

Explicit costs include: workers' wages (cash payments to workers as suppliers of the production factor - labor); cash costs for the purchase or payment for the rental of machines, machinery, equipment, buildings, structures (cash payments to capital suppliers); payment of transportation costs; utility bills (electricity, gas, water); payment for services of banks and insurance companies; payment to suppliers of material resources (raw materials, semi-finished products, components).

Implicit costs are the opportunity costs of using resources owned by the company itself, i.e. unpaid expenses.

Implicit costs can be represented as:

1. Cash payments that a company could receive if it used its resources more profitably. This can also include lost profits (“lost opportunity costs”); the wages that an entrepreneur could earn by working somewhere else; interest on capital invested in securities; rent payments for land.

2. Normal profit as the minimum remuneration to an entrepreneur that keeps him in the chosen industry.

3. For the owner of capital, implicit costs are the profit that he could have received by investing his capital not in this, but in some other business (enterprise). For the peasant - the owner of the land - such implicit costs will be the rent that he could receive by renting out his land. For an entrepreneur (including a person engaged in ordinary labor activities), the implicit costs will be the wages that he could receive (for the same time) working for hire at any company or enterprise.

Thus, Western economic theory includes the entrepreneur’s income in production costs (Marx called it the average profit on invested capital). Moreover, such income is considered as a payment for risk, which rewards the entrepreneur and encourages him to keep his financial assets within the boundaries of this enterprise and not divert them for other purposes.

Examples of opportunity costs:

* A person who has $15 can buy a CD or a shirt. If he buys a shirt, the opportunity cost is a CD and if he buys a CD, the opportunity cost is a shirt. If there are more choices than two, the opportunity cost is still not just one item, never all of them.

* When a person comes to the store and is forced to choose between a steak, which costs $20, and trout, which costs $40. By choosing the more expensive trout, the opportunity cost would be two steaks that could have been purchased with the money spent. And, on the contrary, by choosing a steak, the cost will be 0.5 servings of trout.

Opportunity costs are assessed not only in monetary or substantive terms, but also in terms of anything that is significant. For example, a person who wishes to watch each of two television programs broadcast simultaneously and is unable to record one of them, and therefore can only watch one of the desired programs. Of course, if a person records one program while watching another, the opportunity cost is the time the person spends watching the first program rather than the second. In a store situation, the customer's opportunity cost of ordering both meals could be twofold -- the extra $40 to buy the second meal, and his reputation as he might be thought of as being wealthy enough to spend that much on I'm going. Another option. The family might decide to use a short vacation period to visit Disneyland instead of making home improvements. The opportunity cost here is covered by having happier children, so a bath remodel will have to wait for another day.

The consideration of opportunity cost is one of the main differences between the concept of economic cost and accounting cost. Estimating opportunity costs is fundamental to assessing the true cost of any course of action.

I note that opportunity costs are not the sum of available alternatives if these alternatives are, in turn, mutually exclusive.

Opportunity costs are sometimes difficult to imagine as a certain number of rubles or dollars. In a widely and dynamically changing economic environment, it is difficult to choose the best way to use an available resource. In a market economy, this is done by the entrepreneur himself as the organizer of production. Based on his experience and intuition, he determines the effect of a particular direction of application of the resource. At the same time, income from lost opportunities (and therefore the size of opportunity costs) is always hypothetical.

The accounting concept completely ignores the time factor. It estimates costs based on the results of already completed transactions.

And when determining opportunity costs, it is important to understand that the effect of any option for using a resource can manifest itself in different periods. The choice of an alternative is often associated with the answer to the question of what to prefer: quick profit at the cost of future losses or current losses for the sake of profit in the future? On the one hand, this makes it difficult to estimate costs. On the other hand, the complexity of the analysis results in the advantage of a more thorough consideration of all aspects of the future project.

The concept of opportunity cost is a powerful tool in making effective economic decisions. The assessment of resource costs is carried out here on the basis of comparison with the best of the competitors, the most effective method of using rare resources. The centrally managed system deprived economic entities of independence in making strategic decisions. This means the possibility of choosing better alternatives. The central government authorities themselves, even with the help of computers, were unable to calculate the optimal production structure for the country. They could not find answers to the two main questions of economics: “what to produce?” and “how to produce?”. Therefore, under these conditions, the result of opportunity costs was often commodity shortages and low-quality products.

Workshop

Let's assume you have 800 rubles. If you decide to spend these 800 rubles. for a football ticket, what is your opportunity cost of going to the football match?

Opportunity costs, opportunity costs or opportunity costs is a term that denotes lost benefits (in a particular case, profit, income) as a result of choosing one of the alternative options for using resources and, thereby, refusing other opportunities. The amount of lost profit is determined by the utility of the most valuable of the discarded alternatives. So in order to know the value of opportunity costs, you need to know the possible uses of these 800 rubles. For example, this amount could be spent on clothes costing 800 rubles, or on products whose total cost is also 800 rubles, etc. In this situation, we are faced with a choice and decided to spend 800 rubles. for a football ticket. The cost of goods purchased is the opportunity cost, equal to the cost of the services that we sacrifice in order to choose other services. Opportunity costs in this example are the cost of goods and services that we gave up in order to purchase a football ticket.

So in order to know the value of opportunity costs, you need to know the possible uses of these 800 rubles. Let’s say there was an opportunity to buy a product with this money and sell it at a 50% markup. In this case, the value of opportunity costs will be equal to 1200 rubles. income.