 |
Principle of opportunity cost
If an input is used in a particular production process, it has no alternative use at that particular point of time. This means that the input will be losing income from the alternative, use and this income foregone by this input from its alternative use is called opportunity cost. Opportunity cost is the value of the next best alternative sacrificed. Opportunity cost is the income that could have been received, if the input had been used in its most profitable alternative use. Suppose a farmer has one-ton commercial fertilizer. Suppose further that spreading it on his wheat field will add Tk.12000 to the total revenue from wheat, while spreading it on his onion field will add Tk.15000 to the total revenue from onion. If hefertilizes the onion, his opportunity cost is Tk.12000, because he has forgone to earn Tk.12000 to earn Tk.15000. If he fertilizes the wheat, his opportunity cost is Tk.15000, because he has foregone Tk. 15000 to Tk.12000.
Application:
This principle is applicable during
