Q5Managerial Economics & Financial Accounting
Question
2 marks
What does opportunity cost mean?
Answer
Opportunity cost is the value of the next best alternative forgone when making a decision.
Opportunity Cost is a fundamental economic concept defined as the value of the next best alternative that is forgone or sacrificed when a choice is made.
For example, if a firm uses its own warehouse to store raw materials, the opportunity cost is the rent it could have earned if it had leased that warehouse to another company.