Economics · The basic economic problem. The idea in plain words, the rules to remember, the mistake to avoid and a worked example, written and checked by Mega Lecture.
Because resources are scarce, choosing one thing means giving up another. Opportunity cost is the next best alternative given up when a choice is made. It is not everything that was given up, only the single best option that was not chosen.
Opportunity cost is often not a sum of money. For a student, an hour of revision costs the hour of paid work or leisure given up. For a firm, buying a new machine may cost the advertising campaign it could have paid for instead. For a government, more spending on defence may cost a new hospital.
Good decisions compare the benefit of a choice with its opportunity cost.
Students add up all the options that were rejected. Rank the alternatives first, then give only the best one that was not chosen.
Answer: The wheat crop he gives up, worth Rs 90,000 of profit.
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