What is opportunity cost? Why it helps to manage finances?

[Good-Person]

There comes a time when you have to buy something, however, you are not able to do so. You have to pick some other kind of product instead of the other. This is a very common thing when it comes to managing finances because you may need to consider your budget. So, do you also apply this rule? Why is opportunity cost so important?

 

[Heatman]

They same way individuals have and work with scale of preference because they can't afford everything they want is the same way it is in business management. There are more pressing expenses that needs to be taken care of first, so the one's that are less pressing gets suppressed. They are the opportunity cost of running a business.

 

[Frank]

Opportunity cost is simply the cost of getting a particular product instead of the other to accomplish the same purpose. Let's say that you needed to get fruits and oranges and apples are the ones that you are considering. The opportunity cost of buying an orange is the cost of apple. To manage your finances, you may have to give up some items for the cheaper alternatives in order to save more money at the end.

 

[Heatman]

Opportunity cost is simply the cost of getting a particular product instead of the other to accomplish the same purpose. Let's say that you needed to get fruits and oranges and apples are the ones that you are considering. The opportunity cost of buying an orange is the cost of apple. To manage your finances, you may have to give up some items for the cheaper alternatives in order to save more money at the end.

Basically, it's the benefits or advantages that you're going to miss out from leaving out a particular product just to get another. It's the sacrifice that you have to make in order to get another product. It's impossible for one to get everything they want, so one have to give up on some things to get others.

 

[Frank]

Basically, it's the benefits or advantages that you're going to miss out from leaving out a particular product just to get another. It's the sacrifice that you have to make in order to get another product. It's impossible for one to get everything they want, so one have to give up on some things to get others.

Sometimes, it is the cost of taking, let's say, Pepsi instead of Coca-Cola. The Coca-Cola is the opportunity cost of drinking Pepsi. There are factors that make consumers take this decision, and limited finance is one of it.

 

[Heatman]

Sometimes, it is the cost of taking, let's say, Pepsi instead of Coca-Cola. The Coca-Cola is the opportunity cost of drinking Pepsi. There are factors that make consumers take this decision, and limited finance is one of it.

Exactly! This is something that happens every day in business and in our daily life activities. There's no way we can avoid it because our wants are too many and even our needs can't all be taken care of because we are short on money most of the time.