Economic Term Opportunity Cost
If you're seeing this message, it means we're having trouble loading external resources on our website.If you're behind a web filter, please make sure that the domains *.and *.are unblocked. And so we want to think about what are the trade-offs if we try to catch more rabbits? If I try to get 1 more rabbit, I can't go into this impossible, this unattainable part right over here.But what's the opportunity cost-- let's say, we're tired of eating meat.We're sitting in scenario E, and we want to become vegetarians altogether.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.Let's say we've been hanging out in scenario E for a bunch of days. But now all of a sudden, we're in the mood for more protein. So what I want to do-- I want to say, if I want to catch 1 more rabbit, what am I going to have to give up? I have to stay on the production possibilities frontier, sometimes abbreviated as PPF.
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.
But let's make sure we understand opportunity cost.
So that's when we were sitting in scenario E, the opportunity cost of 1 more rabbit.
If your friend John chooses to quit work for a whole year to go back to school, the opportunity cost of his decision is the year’s worth of lost wages.
The term "opportunity cost" comes up often in finance and economics when trying to choose one investment, either financial or capital, over another.