Question

Discuss the concept of of opportunity cost with an example.

Answer 1

Opportunity cost of production of a commodity refers to the cost which the producer has to sacrifice in terms of the next best alternative which could be produced out of that cost in order to produce every unit of the given commodity. If an economy can produce rice 2000 quintals of rice or 4000 quintals of wheat with the given resources and the economy chose to produce wheat then the opportunity cost will be 2000 quintals of rice which the economy has sacrificed.