what is opportunity cost?

Opportunity cost with example

Opportunity cost is an important Cost in economics, it helps individual and business firms to make better decision by evaluating the potential benefits and cost to different options. 

Opportunity cost refers to the benefits that are forgone when choosing one option over another it is the cost of the next best alternative that must be given up or sacrificed in order to pursue a certain action Or decision. Opportunity cost is a theoretical concept which is not incurred. Though Opportunity cost is not measured in the record yet it is very useful in some decision situations. While decision making the decision maker should not only consider the cost and benefits of the proposed alternative but also the profit that will be sacrified  by the decision maker while making decision. It is his own decision. 

Management must evaluate all possible opportunities and utilise its resources to the best way. So that the form or an organization avail profit and grow. 

Ex. A firm can produce either product A or B if form choose producing product bb Aldo form has opportunity to produce product A yet firm sacrificed it, producing product B is the loss or revenue from product A. It would be say opportunity cost. 

Out of Pocket costs- out of pocket cost is related to the immediate cash outlays which are involve immediately or in future for the decision. For instance labour, costs, repair, material costs, rent insurance, premium all are out of pocket costs. Opportunity cost is not out of pocket cost opportunity costs are imported costs of opportunity sacrifice. 

cost concept - types of cost