Running head: OPPORTUNITY COST, THE VALUE OF THE BEST 1 ALTERNATIVE FORGONE IN MAKING ANY CHOICE Opportunity Cost, the Value of the Best Alternative Forgone in Making any Choice Authors Note This paper was prepared for Microeconomics OPPORTUNITY COST, THE VALUE OF THE BEST 2 ALTERNATIVE FORGONE IN MAKING ANY CHOICE Abstract This paper explores the economic principles of cost opportunity. “Scarcity of resources is one of the more basic concepts of economics. Scarcity necessitates trade-offs, and trade-offs result in an opportunity cost. While the cost of a good or service often is thought of in monetary terms, the opportunity cost of a decision is based on what must be given up (the next best alternative) as a result of the decision. Any decision that involves a choice between two or more options has an opportunity cost.” Alternate decisions based on wants and needs are valued in a way to “every choice that has an opportunity cost and opportunity costs affect the choices people make.
Scarcity is limitedness, which leads to choice making whereby one good or service is chosen which leads to opportunity cost. The alternative foregone is opportunity cost. Opportunity cost is whet you forego or give up one thing that you want to get something else that you believe you want even more. What role do they play in the making of managerial decisions? Scarcity cost: In making managerial decisions, we must first consider that our resources are limited.
Caledonia Products Integrative Problem Fin/370 Caledonia Products Integrative Problem 1. Why should Caledonia focus on project free cash flows as opposed to the accounting profits earned by the projectwhen analyzing whether to undertake the project? Caledonia should focus on free cash flow rather than accounting profits because the free cash flow is what the organization receives, which can then be reinvested. Through thoroughly analyzing the free cash flow, Caledonia would be able to determine the actual benefit or the cost involved. The organization should primarily focus on the incremental cash flow because the incremental cash flow holds a marginal benefit from the project.
As it determines the price of the product, and the price based on absorption costing does ensure that all costs are covered. Absorption can provide management with accurate information concerning product cost. The variable method is beneficial by providing an output that is closer to the cash flow of the company that may be short on cash flow. Variable costing aids in the analysis of cost-volume – profit by separating the variable and fixed in the income statement is another benefit. Which method would lead to the best decision when a competitor is submitting a lower bid for your product?
ECON 1312 Homework Assignment # 2 Chapter 4 1. Why do we need a units-free measure of the responsiveness of the quantity demanded of a good or service to a change in its price? Answer: To measure or to compare the demand of the two unrelated goods or services. 2. Define the price elasticity of demand and show how it is calculated.
So price gauging may not be easily defined but it does mean something to those it affects. The Cause of Price Gouging Demand is actually the cause of price gouging, usually when something out of the ordinary occurs. The law of demand states that “if the price of a good increase, holding other
ASSIGNMENT 1 CHAPTER 1 – Limits, Alternative and Choices 1. Economics may best be defined as the: A. interaction between macro and micro considerations. B. social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity. C. empirical testing of value judgments through the use of logic. D. use of policy to refute facts and hypotheses.
The idea is based on the concept of incremental benefits. According to Emery, Finnerty and Stowe (2007), the incremental costs and benefits are those that would occur with a particular course of action but would not occur without that course of action… The incremental benefits are cash flows in many situations. The incremental cash flow is the cash flow that would occur as a result of the decision minus the cash flow that would occur without the
In an economy where resources are not only restricted, but have alternative uses, choices are inevitable. Thus the most often asked questions, “What to produce”, “how to produce?” which gives us the vast variety of choices involved in resource allocation best explained by the traditional “guns and butter argument” as well as deciding between the best possible production methods and last but not the least, “For whom to produce?” Existence of scarcity and need for choice leads to opportunity cost. It is preeminently describes the sacrificed alternative as the cost of the choice made. Every choice involves a tradeoff; and every choice has an opportunity cost in terms of the benefit gained from what could have been chosen instead. A more practical example of this is compromising on current living standards by choosing to produce capital goods for future potential
Speculative, potential, or prospective reserves are not acceptable in this reserves category. Possible reserves have a higher degree of uncertainty than do proven or probable reserves [4]. . The reserve value is dependent on the "economic limit" which is defined as " the time of abandonment of a project presumably will occur when the net profit becomes zero or trivial, and sale or salvage is more attractive than continuing operation ". An economic limit must be projected for planning and devaluation