Question

Write a short essay discussing opportunity cost in terms of the resources that are available to the entrepreneur in the decision-making process.

Add citation if any references are used. Thank You

Answer 1

Opportunity cost is a macroeconomic term which relates to scarcity of resources. Here scarcity of resources could be time or money. This is the decision making of how we use whatever we have. In which case we have the benefit of one option & forego the benefits of other option. The benefit of foregone option is defined as opportunity cost.

When assessing the opportunity cost, business people will have to keep three things in mind. They are:

• To make an informed decision. The opportunity needs to be assessed both in terms of benefits & costs associated.
• Assessment of broader & monetary benefits.
• Assessment of both the options on same criterion.

So that’s one way our business owner could look at the options available. What if they decided to see if they could do both? They cannot complete both contracts with standard business resources – hence the need to assess which is the most valuable option – but taking on both contracts would support their growth objectives.

By looking at what would be lost by not taking an opportunity, business owners can often find a solution to overcome resource scarcity at a cost that still makes sense. Of course, sometimes it is not viable or sensible to proceed, but by accurately assessing the Opportunity Cost, a more informed decision can be made.