What is opportunity cost?

what is opportunity cost?

since resources are scare society cannot have more of all good at a time. It has to forego one good if it  chooses to have another. The alternative foregone is called the opportunity cost. A piece of land can be used to cultivate rice as well as wheat. If it is decided to use it for production of rice, wheat cannot be cultivated than the opportunity cost of producing rice is the amount of wheat foregone. Similarly if a certain amount of steel is used for production of a car, the same steel cannot be used for the production of machinery for say a textile industry. So here the opportunity cost of the car is the value of the machinery for the textile for the textile industry.

so in simple words it is the value of lost opportunity. Actually various factors are used in combination to produce one particular commodity. the factors used for two different products cannot be exactly the same. For example the factors used for wheat and rice and wheat are same such as land, fertilizer, labour and so on but the seeds are different. so it would be appropriate to follow economist Benham's definition which says that the opportunity cost of anything is the next best alternative that could be produced by the same factors or by an equivalent group of factors, costing the same amount of money "The term equivalent group of factors makes calculation of opportunity cost practicable.

A factor can be used for production of various commodities, but it is not necessary that it is equally efficient use of each of these products. on the basis of the efficiency we may order all these alternative use. The opportunity cost becomes the value of the next best alternative foregone. when we know the various factors used in the production of a good, the opportunity cost of the good may be estimated by adding up the opportunity cost of catching the factors. In well functioning markets, the price equals the opportunity cost.

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