Opportunity Cost Principle, Principle of Managerial Economics Assignment Help

Basic principles of managerial economics - Opportunity Cost Principle, Principle of Managerial Economics

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Opportunity Cost Principle

The opportunity cost principle describes a decision to accept an employment for any factor of production is only profitable if there is total reward for the factor in that occupation is greater or at least no less than the factor's opportunity cost. Opportunity cost arises because the most economic resources have use of more than one. This cost is the amount of subjective value foregone in choosing one alternative over the next best alternative. Opportunity cost is the 'cost of sacrificed alternatives'

If there are no sacrifices and there is no cost. Like the opportunity cost of using a machine to produce one product is the earnings foregone that would have been earned from producing other products. Similarly the opportunity costs of using the premises for own business is the rent that would have been earned by giving it on rent. 

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