Some uses (importance/applications) of the concept of opportunity cost

Some uses (importance/applications) of the concept of opportunity cost

  1. It helps the producer in allocation of resources.  That is, determining what to produce, when produce, how to produce, where to produce and for whom to produce
  2. It helps consumers in making    consumption     choices.    That is, consumers choose to buy a commodity that maximizes utility.
  3. It is used in pricing factors of production. That is, the price of a factor of production must be placed at a higher level than its opportunity cost.
  4. It is applied in international trade under the principle of comparative advantage in which a country specializes in the production of a commodity where it has the least opportunity cost.
  5. It is used in planning and budgeting for public  and private expenditures in presence of scarce resources.
  6. It helps workers to make employment decision, based on the opportunity cost of leisure
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