Opportunity cost Essay Example | Topics and Well Written Essays - 500 words - 1

Opportunity cost - Essay Example Different perspectives however exist for definition of opportunity cost but they revolve around the cost that can be derived from the next best alternative. Ferguson, an economist, for example, defines opportunity cost in terms of resources and as mount of resources for producing the next best alternative, which is forgone in order to produce a subject commodity. This establishes cost of the two commodities as a common measure for determining sacrificed cost for a production. Henderson offers a definition that is closer to cost measure by defining opportunity cost as the â€Å"value of the highest-valued alternative† for which resources in a production could have been used (Hussain, 2010, P. 158). Leftwich’s definition of opportunity cost as the value of foregone option for production in which resources would have been used is also consistent with the focus on cost of resources in production of a commodity (Hussain, 2010). It is however important to note that opportunit y cost is not market price of an alternative commodity or market price of materials that could have been used in the alternative. Commodities that are produced from a similar material may have a relationship between opportunity cost and market cost but this is not always the case because of the subjective nature of opportunity cost (Baumol & Blinder, 2011). Opportunity cost is therefore the value, and not necessarily market price, of resources use in a production, which could have been used in production of the next best alternative production. Opportunity cost can be either implicit or explicit and existence of reward for involved sacrifice establishes the distinction. Explicit costs in opportunity cost are those costs that are incurred for payments, in monetary or otherwise terms, to stakeholders that sacrifice their resources for production of a commodity.