Explain the concept of opportunity cost with the help of an example.

1.	Explain the concept of opportunity cost with the help of an example.
Answer» Ex we have 50/- we have two options like cinema ticket and notebook. He has to sacrifice one good for another good. Suppose he takes notebook so he sacrifice cinema tickets. Cinema ticket Is opportunity cost.<br>An opportunity cost is the cost of an alternative that must be forgone in order to pursue a certain action. In other words, the cost of enjoying more of one good in terms of sacrificing the benefit of another good is termed as opportunity cost of the additional unit of the good.Example: We have Rs 15,000 with two choices a) to invest in the shares of a company XYZ or b) to make a fixed deposit which gives interest 9%. If the company XYZ gives a return of 15%, we will benefit when we invest in the shares as the alternative would be less profitable. However if company’s return is only 3% when we could have made a return of 9% from FD, then our opportunity cost is (9% - 3% = 6%).

Discussion