How Does Opportunity Cost Affect In Decision Making?

Opportunity cost is defined as the value of the product that is forgone in order to obtain or produce another product. This concept is also known as the economic opportunity loss. It is the basic concept of economics. It defines the choices made by consumers.

The concept of Opportunity cost is directly linked to economic decision making. In fact Economic Decision making is totally dependent on opportunity cost analysis. Companies- even individuals, indulge in economic decision making while deciding on a purchase.

They have to evaluate the value of the product or resource that is forgone in order to obtain another product. This is because, they are paying out of the same budget. For making a good choice they have to see what is the opportunity cost of a particular product and its alternative.

The concept of Opportunity cost is closely linked to economic decision making. In fact it leads to economic decision making. Opportunity cost helps us understand what is are benefits and negatives associated with certain economic decision. It helps in selection of a decision that has more benefits and lesser negatives than any other option.

Well! Economic decision making requires the selection of the alternate which can give you the maximum benefit and through which you can cover all of your costs. Opportunity cost is the forgoing cost and when there are a number of business alternatives  then the decision makers select the alternative which has the highest opportunity cost because if the decision maker selects any other alternative he has lost the opportunity. Moreover, all of the alternatives would be acceptable which covers the economic cost. For example, if a company wants to invest in pre-buying of stock instead of investing in some other business then the company has to analyze its opportunity cost and the economic benefit for it.

Opportunity cost

Economics is all about 2 things-Choice and Scarcity of resources.
So you always have to make a decision if you want to produce say, either Wheat or guns with 'X' amount of resources. You can produce either only wheat,or only guns,or both-in parts.
In any case you are producing one at the cost of other-THAT is the opportunity cost-cost of thing forgone for producing the other.

This  is where a decision needs to be made because resources are limited.