Economic Term Opportunity Cost

Economic Term Opportunity Cost-33
And we can do it at different points of this curve, and I actually encourage you to do.Based on the data that we have in this table that we constructed in the last video and maybe this curve, think about what the opportunity cost is in the different scenarios.

The opportunity cost of 20 more berries is 1 rabbit, but if you assume that this is somewhat linear right over here-- it's not so curved, it's somewhat of a line between those 2 points-- then the opportunity cost of 1 berry is 1/20 of a rabbit.

Or the marginal cost of an extra berry is 1/20 of a rabbit.

Investors are always faced with options about where to invest their money to receive the highest or safest return.

The investor’s opportunity cost represents the cost of a foregone alternative.

So over here, what we're doing is we're saying, OK, I want to increase my berries by 20, but to do that, I have to decrease my rabbits by 1.

So the opportunity cost-- assuming we are in scenario E-- the opportunity cost of 20 more berries is 1 rabbit.So this right over here, you can also view it as the marginal cost.In the context of this video, our costs are in terms of the thing that I'm giving up, the opportunity that I'm giving up.And when I phrase it this way, it is being phrased as a marginal cost.Now for those of you who want to get a little technical, this is a curve right over here. Well, I don't want to get too technical for the sake of this one right over here, this is a safe way to think about it.So I'm really going from scenario E to scenario D. But if I want 1 more rabbit, the production possibilities frontier drops off, and I will have to give up 40 fruit. As we'll see, it's going to change depending on what scenario we are in, at least for this example.So the opportunity cost of 1 more rabbit is 40 berries, assuming we are in scenario E. And another term when we talk about the opportunity cost of going after-- after producing I guess you could say-- the operating cost of producing 1 more rabbit here, when we talk about the opportunity cost of producing 1 more unit, that's sometimes called the marginal cost.If you're in scenario B and if you want an extra rabbit, how much is that going to cost you in terms of berries?Or if you want more berries, what's that going to cost you in terms of rabbits?In other scenarios, you'll see sometimes a marginal cost be given in actual monetary units, like dollars or whatever else.What was the cost of producing that extra unit, that extra widget, right over there.


Comments Economic Term Opportunity Cost

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