Concept of Opportunity cost

Today we will discuss the concept of opportunity cost with the help of examples.

The concept of opportunity cost was developed by Austrian school of economics. Later on it was popularized by American economist Devenport. Mrs. John Robinson used the term transfer earning in place of opportunity cost. Opportunity cost can be defined as the cost of next best alternative foregone. It is also known as transfer cost/ alternative cost. It can be best explained with the help of following example:

Suppose you get the opportunity to do a job of Rs. 30000, Rs. 40000 or Rs. 50000 per month. You selected the job which is offering Rs. 50000 per month. So here the opportunity cost will be Rs. 40000 as it is the second best alternative foregone.

But in case you selected the job of Rs. 40000 then the opportunity cost will not be Rs. 30000 it will be the highest one i.e. Rs. 50000 as it is the next best alternative foregone.

I hope you have understood the concept of opportunity cost.

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