1.2 opportunity cost and factors of production
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Opportunity cost refers to the next best alternative given up when making a decision. All resources are limited, including capital, land, and labor. When starting a sandwich shop business, opportunity costs must be considered for the land, labor, capital, and entrepreneur involved. Every factor of production is finite - using labor for one task means it cannot be used for another. Opportunity costs affect all decisions made regarding limited resources.
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Opportunity Cost
Opportunity cost refers to the cost of an alternative that must be forgone in order to pursue a certain action or decision. It is the value of the next best alternative that is given up. While opportunity costs do not involve direct monetary payments, they represent the benefits lost from the best alternative forgone. Understanding opportunity costs is important for efficient allocation of scarce resources, as every decision carries an opportunity cost, whether in business, economics, or personal life.
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The document discusses the concept of opportunity cost. It defines opportunity cost as what is given up when choosing one option over another. It provides examples to illustrate opportunity cost, such as spending money on movies means giving up spending it on candy or saving it. The document also discusses how every choice has an opportunity cost, whether it is a personal choice or government spending choice, like the opportunity costs of the Iraq war which could have been used to provide healthcare or education.
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Opportunity cost refers to the cost of an alternative that must be forgone in order to pursue a certain action or decision. It is the value of the next best alternative that is given up. While opportunity costs do not involve direct monetary payments, they represent the benefits lost from the best alternative forgone. Understanding opportunity costs is important for efficient allocation of scarce resources, as every decision carries an opportunity cost, whether in business, economics, or personal life.
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1) The three fundamental economic questions are what to produce, how to produce, and for whom to produce.
2) Opportunity cost is the best alternative forgone in making a decision and represents the value of the next best choice not selected.
3) A production possibilities curve illustrates the maximum combinations of two goods an economy can produce given scarce resources, and assumes resources and technology are fixed in the short-run.
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2) Absolute advantage theory proposes that countries should specialize in goods they can produce most efficiently.
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This document discusses investment decision making. It defines investment and outlines the objectives of studying portfolio management and capital markets. It explains that investment decision making involves understanding different decision rules, categories of rules, and ensuring expected returns. The decision process involves characterizing good rules, calculating returns based on constraints, eliminating alternatives, and using rules to accept or reject opportunities. Good rules maintain a balance between analysis and subjectivity while maximizing value and minimizing risk across various investments. Common categories of rules are accounting income-based and cash flow-based.
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The document discusses the components of the cost of capital, including debt, preferred stock, and common equity. It provides methods for calculating the costs of each component, such as using bond yields for the cost of debt. The weighted average cost of capital (WACC) is calculated using the costs of each component weighted by the target capital structure weights. Factors that influence the WACC include market conditions, the firm's capital structure and investment policy. The document also discusses approaches for adjusting the cost of capital for divisions or projects based on their specific risks.
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BÀI TẬP BỔ TRỢ TIẾNG ANH 8 CẢ NĂM - GLOBAL SUCCESS - NĂM HỌC 2023-2024 (CÓ FI...
1.2 opportunity cost and factors of production
- 1. Opportunity Cost Introduction to the concept and practical application of the theory
- 2. Definition “The best alternative that is foregone when making a decision” Or …. “the second best option given up in order to benefit from the best option”
- 3. Why opportunity cost exists ALL resources are limited!!!!! Capital, Land, Labour then we need one person to pull it all the together and to take the risk of starting the business …. The Entrepreneur Sandwich shop
- 4. Land All the raw materials required to operate the business: Anything which is gathered or grown and may be processed Bread, vegetables, sauces and condiments and spices, butter, cheese, water, cold drinks, tea, coffee and other sandwich fillings
- 5. Labour “Anyone who contributes to the business through their mental or physical effort” Cook, waiting staff, cleaning and dishwashing staff, purchaser , outdoor security and parking, delivery staff, manager, book keeper/accountant
- 6. Capital “The goods and equipment bought in order to carry out the function of the business” Building, décor, tables and chairs, toasters, kettles, refrigerators, AC, water filters, ice machine, blender, knives, graters, plates, cups, glasses, entertainment equipment, blinds or curtains, uniform, napkins, delivery packaging, cash register, till rolls, toilet paper, cleaning materials, pens, order pads etc etc. etc. etc. etc.
- 7. Entrepreneur The individual or group who gather together the other factors of production and take the risk of starting and running a business. EktaKapoor, Ratan Tata, AdityaVikram Birla
- 8. How opportunity cost effects decisions Every factor of production is finite. If we use one persons labour to serve tables we cannot use the same labour to provide security. If we use bread to make a cheese sandwich we cannot use the same piece of bread to make an egg sandwich. …to extend the metaphor …….
- 9. How many uses can you think of for ….. An Egg? A brilliant mathematician? A piece of farmland near a large city? Steel? Oil?
Editor's Notes
- EktaKapoor, Ratan Tata, AdityaVikram Birla