Opportunity Costs Accounting Costs Economic Costs Three Relationships

Cost in general is the cost of production and business activities of enterprises. Enterprises need to calculate the cost in accounting, the cost is accounting cost, refers to the manufacturer in the production and operation of all the costs paid at market prices, such as wages, materials, machinery and equipment depreciation Zan, utilities and so on.

The meaning of cost in economics is different, cost in the sense of economics is an economic cost, in addition to the accounting cost actually spent by the enterprise, but also contains the concept of opportunity cost. Opportunity cost refers to the highest price that can be paid for foregoing other uses of some resource as a result of using that resource.

Expanded:

Coverage

1. The opportunity cost of using another person's resource, i.e., the monetary consideration paid to the owner of the resource is known as the explicit cost.

2. That cost of foregoing the maximum return from other possibilities because of the use of one's own resources is also known as the implicit cost.

Preconditions

The preconditions for economic analysis using the concept of opportunity cost are:

1. Resources are scarce

2. Resources have multiple uses

3. Resources are already fully utilized

4. Resources are free to move around

Characteristics:

1. Opportunities are optional items

1. Choice of projects

Opportunity cost refers to the opportunity must be the decision-maker can choose the project, if it is not the decision-maker can choose the project does not belong to the decision-maker's opportunity. For example, if a farmer can only raise pigs and chickens, then raising cattle is not an opportunity for the farmer.

2. Opportunity cost is a gain

Giving up the opportunity for the highest return on the project is the opportunity cost, that is, the opportunity cost is not to give up the sum of the project's return. For example, a farmer can only be engaged in pig farming, chicken farming and cattle farming, if the relationship between the three benefits of cattle & gt; pig farming & gt; chicken farming, the opportunity cost of pig farming and chicken farming are cattle farming, while the opportunity cost of cattle farming is only pig farming.

3. Opportunity cost and resource scarcity

Choosing one thing in a world of scarcity means giving up something else. The opportunity cost of a choice is also the value of the good or labor given up. Opportunity cost is the maximum possible gain that can be obtained from using a certain resource for something else that is given up when it is used for the production of a certain product, given finite resources.

References:

Baidu Encyclopedia-Opportunity Cost