Answer to Question #153241 in Economics for Omar

Question

Your younger sister receives a weekly allowance of $20, which she spends entirely on nail polish and candy bars. Nail polish costs $4 per bottle, and candy bars are $1

how to calculate the opportunity cost ?

Answer 1

When making a choice in favor of this or that option, an economic entity inevitably faces the need to sacrifice something for this. So, directing funds to finance entrepreneurial activities, an economic entity refuses the opportunity to receive interest on them if they are placed in bank accounts, or from other options for using the funds. The best of those options, which the economic agent sacrificed when making a choice, and represents the opportunity cost of the chosen option. There is a certain algorithm for determining the opportunity cost, which can be presented in the following sequence: Evaluation by an economic entity of the available options in terms of their profitability for him; Arrangement of available options according to the degree of decrease in their profitability for an economic entity; Choosing the option that has the greatest benefit and discarding the rest of the options; Determination of the opportunity cost as the value of the second most profitable option while ignoring the rest.