What is "opportunity cost"? (Business Studies)

How would you explain to me what "opportunity cost" is, in east-to-understand terms?

Thanks in advance.

Reply 1

Opportunity Cost: The value of the next-best alternative that must be forgone in order to undertake an activity
Decisions depend upon opportunity costs
It is not the combined value of all other forgone activities, just the next best one

Reply 2

Christian_j

Wikipedia gives good examples: http://en.wikipedia.org/wiki/Opportunity_cost#Examples

Depends on what business decision you;re applying it to, but from a personal perspective, say you had £500 that you put into premium bonds. The opportunity cost is the interest that you would have earnt by putting it into the bank instead.

By the way, the 'cost' does not have to be monetary.

Reply 3

Brownman0502

In Econ, I write "Opportunity Cost is the cost of the next best alternative forgone"
Thats it!!! Full Marks :smile:

Reply 4

Lampshade

Competing wants + relative scarcity = opportunity cost

Reply 5

zav

Brownman0502

In Econ, I write "Opportunity Cost is the cost of the next best alternative forgone"
Thats it!!! Full Marks :smile:

That was correct when I was doing A level Economics.

Reply 6

mobz247

it is the next alternative forgone for the choice that has been made

Reply 7

caroline147

The value of the next best foregone alternative.

Gosh, I'm so tired of Economics revision.

Reply 8

thetopnotch

Pillar of Autumn

How would you explain to me what "opportunity cost" is, in east-to-understand terms?

Thanks in advance.

take the definition and apply it as well, e.g. so if a firm is making an investment the oppurtunity cost would be defined as:

the next best altenative forgone by the firm in ivesting £5000 into R & D. The oppurtunity cost to the firm is that the money could have been spent elsewhere in areas such as training

Reply 9

Pillar of Autumn

Also, what does "highly geared" mean?

Reply 10

Strictly Business

Pillar of Autumn

Also, what does "highly geared" mean?

Borrowed a lot of money/has a lot of debt.

Reply 11

thetopnotch

Pillar of Autumn

Also, what does "highly geared" mean?

Look at the gearing ratio:

Gearing= (Long term liabilities x100)/ Capital Employed

So gearing shows the percentage of money that a company has borrowed to how much money it raised through Shareholder, profits, liabilities.

High gearing means that a higher % comes from Loans