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Opportunity Cost
Tahirah Lee
[Institutional Affiliation(s)]
Author Note
Opportunity Cost related to a firm
Opportunity Cost
Consumers typically think that the cost is only the amount paid when she buys something. However, economists view the concept in an entirely different light. They define cost as the value of the resources used in the making of a product or rendering of a service. They also talk about the concept of opportunity cost, a concept that is used to explain an economic cost that is rendered when a person has to choose only one product among two or more products of a similar kind.
Implicit costs refer to the opportunity cost of the company resources CITATION ÖNE18 \l 1033 (ÖNEL, 2018). It can be stated as the cost that has been done and will not be considered for the present fiscal period while calculating the present monetary situation of a company. This is also as imputed cost as it represents the probable income that the company means is capable of earning. To understand the concept, let us take the example of a factory-owner. He owns the factory premises; therefore, he does not need to pay rent for it. But, if he rents out the premises of his factory, he can get probable rental income. Therefore, we can assume that the rent that is not released by the factory-owner is the implicit cost that he is incurring. This may be not important for an ordinary consumer, but it is central for an economist as he is always concerned about the best utilization of the limited resources that are at his disposal. In this case, if the rental income would be more than the actual cost of production of the commodity produced, the economist would advise the factory-owner to rent the premises of his factory rather than the continuing production of goods. Hence, we can conclude that the implicit cost estimations provide the true potential of any industrial unit and therefore it is of vital importance to an economist in his calculations.
References
BIBLIOGRAPHY ÖNEL, G. (2018). An implicit model of adjustment costs in differential input demand systems. Theoretical and Applied Economics, 25(2), 119-132. Retrieved from http://store.ectap.ro/articole/1333.pdf
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