Opportunity Costs- Unrevealed Facts

Introduction

Over the past few years, finance has forayed into several specialized areas. Portfolio and security management, capital budgeting has become a significant tool itself for academics as well as business to blend numerous theories and subject to control the finances. With time, financial derivates have become an important aspect of stock marketing that could be utilized in risk management by several companies. Recently companies accounted for advances in project and infrastructure finances with a large project getting finances in a resourceful way for instance companies start focusing on the opportunity cost, merges and acquisition, and restructuring the process that we see now a day(Kurzan et.al, 2013). 

 

The last two decades also saw a sudden increase in the activity nexus with credit and products derivates. In 2008 the financial meltdown slows the process because major experts blame the financial crisis due to the heavy application of structured products.

 

The study of opportunity cost involves how we spend our time. This shows every time we make choice, there will be some choices that have value for it. 

Opportunity Cost

 

Opportunity cost refers to the value sacrificed to choose the best alternative in that response. Many assignment makers termed it as alternative cost because the opportunity cost is what you forgo to get the benefit. When we decide to follow one alternative, we decide not to choose another. As a result, benefits accrued are given up, At what extent, they could be quantified or measured, they will become either relevant cost or opportunity to execute decisions. 

 

For instance, suppose a business owns a building, it could be used for the business purposed or be rented. If a building owner chooses to set up a business, then he may foregone the capital may arise from the renting. Henceforth it can be said, opportunity cost is linked with a feasible alternative. The loss of rental cost will be an opportunity only when there are potential tenants who want to be hired. 

 

As opportunity costs are hypothetical costs, they are not included in the accounting records, however, one should never forget to account for the alternative cost before decision making. There is another cost that is quite similar to opportunity cost called Imputed cost not recorded in the accounting books but must be included if the correct decision is to be arrived at(Spiller, 2017). An example of the imputed cost will be the interest that arises from the principal amount.

 

The ultimate resource of the opportunity cost is the persuasive problem of scarcity. Opportunity cost is the fundamental aspect to study economics.

Opportunity Cost Factors

During investment or working on a project, an individual would expect the highest possible value for return of investment. Thus giving up the value a business owner can generate by not choosing the alternative value also brings several doubts

 

According to essay typer, the monetary value spends on the opportunity cost should provide adequate ROI. Henceforth how much capital is being sacrificed implied the corrective measurements taken by an accountant.

 

Another valuable asset is Time because it requires only investment. The high value is expected from the opportunity cost if time consumption is higher. 

 

Energy investment is equally important because it will demand a skilled workforce, consumers, their time, and lots of evaluation. 

The Three Types Of Opportunity Cost

 

In most cases, recognize the opportunity cost alter personal behavior sometimes comes into the role due to societal decisions. 

 

According to the US transportation department, more than 800 people take plan trips before 

9/11 hijacking, since that incidents security screening, has become more intense than in past. On average each passenger spends 30 minutes extra during a plane trip, and if we converted their time as opportunity cost, then the price of time for the airs passengers will be $20 per house. 

 

In this case, the opportunity cost of flight delays will be-

 

800 million(passenger) x $20/hr x 0.5 hours per years

The estimating value-generating will cost $8 billion. Clearly, the waiting time is just as substantial a cost involving direct costing.

 

The distinction of opportunities gives rise to the explicit cost and Implicit cots

 

Explicit Cost- This refers to the cost that mainly involved capital, transactions at the market level. The money spent is subjected to compensate the person who has seen the opportunity cost and forgoes their satisfaction. This cost transfers the burden to opportunity cost from one person to another who is making payment. According to online assignment help experts, explicit costs involve wages, lease payments, raw material utilization, and other costs

 

Economists use the explicit opportunity cost to check the business capability, whether the employee feel satisfied or is it capable to stand in long run or not( Mc Manus, 2016).

 

Implicit Cost- This is opportunity cost usually don’t involve the payment or money transaction. The person incurring the opportunity cost will not be satisfied from the cost is transferred to anyone. It will benefit the company if it instead of buying equipment provides health care reserve to the person that in turn yield a higher production rate. To know more take free assistance from the plagiarism-free assignment help from the SourceEssay team of experts anytime.

 

Conclusion

 

The notion of the opportunity cost explains why a person chose something over another alternative. Whether it is a developing or a developed country, if an economist referred to cost, it means they are talking about opportunity cost because the firm economic profits are calculated on the behalf of opportunity cost. If accounting profits are calculated through the explicit cost then accounting profits will be higher than economic profits, Therefore including each aspect of opportunity cost and its types is essential to determine the decision-making capability of the firm and how well it is performing in the varied market sphere.

References

Kurzban, R., Duckworth, A., Kable, J. W., & Myers, J. (2013). An opportunity cost model of subjective effort and task performance. Behavioral and brain sciences, 36(6), 661-679.

Lumenlearning.2020. Reading: The Concept of Opportunity Cost. Available at- https://courses.lumenlearning.com/suny-microeconomics/chapter/reading-the-concept-of-opportunity-cost/ Data accessed on 17 Jul. 21

Mc Manus, P. (2016). Examining the Factors to Knowledge Sharing within an Organisational Context. In Irish Academy of Management (IAM)-Doctoral Colloquium, Dublin.

OPPORTUNITY COST, AmosWEB Encyclonomic WEB*pedia, http://www.Am. osWEB.com, AmosWEB LLC, 2000-2021. [Accessed: July 17, 2021].

Spiller, S. A. (2017). Opportunity cost consideration. Journal of Consumer Research, 38(4), 595-610.