# Is opportunity cost included in the total cost of a firm?

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#1
Fixed Costs + Variable Costs = Total costs.

Normal profit is a fixed cost and involves opportunity costs. So does the 'fixed cost' include opportunity cost?

If the opportunity cost is £30, but obviously since it is an opportunity cost you don't have to pay it. Is the £30 still included in the total costs or not?

If the total fixed cost without opportunity cost was £40 And total variable cost is £10 then TC is £50. But if opportunity cost is included in the fixed cost then total fixed cost is £70 with the same £10 variable cost then TC is £80. However which one of these total costs is correct? I'm confused because opportunity cost is an 'imaginary cost'!

If they are included, why? It is not even a real cost of production!
0
6 years ago
#2
(Original post by d9717)
Fixed Costs + Variable Costs = Total costs.

Normal profit is a fixed cost and involves opportunity costs. So does the 'fixed cost' include opportunity cost?

If the opportunity cost is £30, but obviously since it is an opportunity cost you don't have to pay it. Is the £30 still included in the total costs or not?

If the total fixed cost without opportunity cost was £40 And total variable cost is £10 then TC is £50. But if opportunity cost is included in the fixed cost then total fixed cost is £70 with the same £10 variable cost then TC is £80. However which one of these total costs is correct? I'm confused because opportunity cost is an 'imaginary cost'!

If they are included, why? It is not even a real cost of production!
As you say, opportunity cost isn't actually a cost in the sense of a tangible amount of money being spent. I can see why you'd be getting confused, because having cost as part of the term does have the potential to be confusing, but just think of it as a theoretical term created by economists to examine what a firm is losing out on by focusing on one thing rather than another.
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1 year ago
#3
Sorry for the late reply, but based on my understanding, opportunity cost is not included in total cost when doing accounting. However in economics, opportunity cost IS included in a firm's total cost since they want to know whether their decision was reasonable enough. It is known as an implicit cost in economics.
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