Opportunity Cost and Economic Gain

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(Edited)

Opportunity Cost and Economic profit

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Many of us may know about the Opportunity cost. Opportunity cost is the cost which we need to be incurred as the second-best alternatives in our choice. For example, I have four options at my hand to do.

  1. First of all, I can do a job with 8 hours working time for per month 1000 US dollar celery
  2. I can do a business by investing 30,000 US dollar and Spending My 8 hours working time. And I shall get 1300 USD dollar per month.
  3. I had another business opportunity where I don't need to invest any money just, I need to spend my time of a Towers and there I shall gain about 800 US dollar per month.
  4. And forth on his I have another job opportunity where I need to work for about 8 hours and I shall get 900 US dollar.

So out of all these options which one I shall choose for my job purpose. Should I start business or should I join a job?

If I just calculate all these for alternative’s returned then it will be very much easier for me to decide which one should be preferable to me.

• First and forth one are very much clear. I am getting flat 1000 US dollar per month and 900 US dollar per month. And third one also simple because I am getting 800 US dollar per month for the business’s time spending.
• Let's calculate the second one. If the safe market return is is 10% then by investing my $30,000 in any other options or alternative that I shall get 10% that is 3,000 US dollar annually so $250 per month. Beside these 250 US dollars, I am getting 1050 US dollar for spending 8 hours in that business because the total return of this business is 1300 per month.

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Source : Image by mohamed Hassan from Pixabay


So out of these four options are like following

  1. 1000 USD
  2. 1050 USD
  3. 800 USD
  4. 900 USD

If there is no preference or other factor then I should go for second option that is do the business. So, in that case I am losing another three options what are available for me. So, the second best was the first one that is 1000 US dollar per month. And economist say that this second best alternative that i need to to sacrifice is called the opportunity cost. And in that case the opportunity cost for me is 1000 US dollar. And they also wants to suggest that the profit or economic profit for me is just not 1050 US dollar rather it's the difference between my chosen one and the opportunity cost (1050-1000)= 50 USD.

So, in that way opportunity cost decides the economic profit of any work, job, business, project or investment. The more the opportunity cost the less the economic profit. The two in that way accounting profit is different from economic profit which I shall discuss in another post.

Thank you all for reading my post and understanding the matter if you have any question you can ask me below in the comment.


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