Opportunity cost refers to the benefit of giving up one scheme because of choosing another. Also known as opportunity cost or replacement cost. It reflects the "cost" of not choosing the best scheme or opportunity. Or choose a business project at the expense of another opportunity. For example, in the case that the supply of production factors is limited and it is impossible to produce another product in order to produce one product, the opportunity cost of producing this product refers to giving up the income of another product. Another example: someone decides to open a small grocery store, which needs to invest in buying goods and operating facilities, and it takes time and energy to operate. For this person, the opportunity cost of opening a shop is the interest he can get from the investment he needs to save (or the income he can get from using the needed investment for other purposes), plus the salary he can get from other jobs if he doesn't open a shop. When the production (management) capacity has been fully utilized or nearly fully utilized, or the supply of manpower, material resources and financial resources is insufficient, opportunity cost is of certain significance to correct decision-making. In this problem, the opportunity cost is 35,000, which is based on the one with the highest income among the abandonment options.
1. Characteristics of opportunity cost:
1) Opportunity is optional: the opportunity referred to by opportunity cost must be optional for decision makers. If it is not optional for decision makers, it does not belong to decision makers. For example, if a farmer can only raise pigs and chickens, then raising cattle will not be an opportunity for a farmer.
2) Opportunity cost is profitable: the most profitable project among abandoned opportunities is opportunity cost, that is, opportunity cost is not the sum of the profits of abandoned projects. For example, a farmer can only choose between raising pigs, chickens and cows, if the income relationship between them is cattle >; Raising pigs > raising chickens, the opportunity cost of raising pigs and raising chickens is raising cattle, and the opportunity cost of raising cattle is only raising pigs.
3) Opportunity cost and scarcity of resources: Choosing one thing in a scarce world means giving up other things. The opportunity cost of choice is the value of the abandoned goods or services. Opportunity cost refers to the maximum income that can be obtained by using a certain resource to produce a certain product under the condition of limited resources.