Opportunity cost principle

 The opportunity cost principle is a key concept in managerial economics that refers to the cost of giving up the next best alternative when making a decision. In simpler terms, it is the cost of what you must forego in order to pursue a certain action. Here are a few examples of opportunity cost principle:

A company may need to decide whether to invest in a new product line or expand its current operations. If the company decides to invest in the new product line, the opportunity cost would be the potential profits that could have been made by expanding the current operations instead.

A student may have to choose between studying for an exam or going out with friends. If the student chooses to go out with friends, the opportunity cost would be the potential grade that could have been achieved if the student had chosen to study instead.

A farmer may have to choose between planting crops A or B. If the farmer chooses to plant crop A, the opportunity cost would be the potential profits that could have been made by planting crop B instead.

A business may have to decide whether to purchase new equipment or hire additional employees. If the business chooses to purchase new equipment, the opportunity cost would be the potential benefits that could have been gained by hiring additional employees instead.

In each of these examples, the opportunity cost is the value of the next best alternative that was forgone in order to pursue a certain action. By considering the opportunity cost, businesses and individuals can make more informed decisions and allocate their resources in the most efficient way.