OPPORTUNITY COST AS A BASIC CONCEPT OF ECONOMICS, Opportunity cost as a basic concept of economics is another aspect of human behaviour in relation to dealing with the available scarce resources. The idea of arranging our basic needs, choosing the very one we want to satisfy and then letting the others go,, check out scale of preference here. A man having just two dollars and have need of a t-shirt and and android phone but has the purchasing power to buy only one out of the two item.

Opportunity cost is the value of the next best alternative that is forgone as a result of choosing one option over another. In other words, it is the cost of giving up the opportunity to choose another alternative.

For example, suppose you have $100 and you are trying to decide whether to invest it in stocks or bonds. If you choose to invest in stocks, the opportunity cost would be the potential return you could have earned by investing in bonds instead. Similarly, if you choose to invest in bonds, the opportunity cost would be the potential return you could have earned by investing in stocks.

Opportunity cost is an important concept in economics and business decision-making because it helps individuals and organizations make more informed choices by weighing the potential benefits and costs of different options. By understanding opportunity cost, individuals and organizations can make better decisions about how to allocate their resources, such as time, money, and labor.

If he chooses to buy the t-shirt and leave out the android phone, it then means that the opportunity costs of the t-shirt is the android phone which he did not buy

Definition of Opportunity cost

Definition: Opportunity costs is defined as an expression of cost in times of forgone alternatives. It is the satisfaction of one’s want at the expenses of another want. It refers to the wants that are left unsatisfied in order to satisfy another more pressing need. Human wants are many, while the means of satisfying them are scarce or limited. We are therefore; faced with a problem where we have to choose one form a whole set of human wants; to choose one means to forgo the other, a farmer who has only two hundred naira (200.00) and want to buy a cutlass and a hoe may discover that he cannot get both materials and item for two hundred naira.

 He would therefore have to choose which one to buy with the money he has. If he decides to buy a cutlass, it means he has decided to forgo the hoe. The hoe read simple farm tools here, is thus what he has sacrificed is the forgone alternative and this is what is referred to as opportunity costs should not be confused with Money cost refers to the total amount of money that is spent in order to acquire a set of goods and service.


For example, a customer who spent 6,200.00 to buy a pair of trousers has dispensed with cash. The 6,200.00 spent is the money cost.

Importance of Opportunity Cost

Opportunity cost is very important to individuals firms and governments. So lets take a look at the importance of opportunity cost to businesses, government, firms, organizations and to individual

  1. Importance of Opportunity Cost To individuals
  2. Wise choice: Opportunity cost enables individual to make wise choice between competing wants.

 It also assists individual to make maximum use of scarce resources relative to their unlimited wants.

  • Importance of Opportunity Costs To the firms
  • Rational decision: It assists the firm to make rational decisions about production process.
  1. Importance of opportunity costs to Techniques of production:

It also helps manufacturing industries in deciding the techniques of production, i.e. whether to adopt capital or labour intensive method of production.

  • How the government of any country makes use of opportunity cost
  • Preparation of budget: Opportunities cost helps the government in the preparation of budget, since it assists in efficient allocation of scarce resources to certain sectors of the economy.

Decision making process: It helps the government in making certain decisions, e.g. the priority areas that may require immediate attention, such as medical and education

  1. economic tools for nation building
  3. factors affecting the expansion of industries
  4. bud
  5. getting mineral resources and the mining industries
  6. demand and supply
  7. types of demand curve and used
  8. advertising industry
  9. factors of production
  10. entrepreneur
  11. joint stock company



The cost of production is one of the most critical aspects of any business. It can have a significant impact on the bottom line and can determine the success or failure of a company. Understanding the cost of production is essential for businesses to make informed decisions about pricing, inventory management, and production capacity. In this blog post, we will explore what the cost of production is, why it matters, and how to calculate it.

What is the Cost of Production?

The cost of production refers to the expenses incurred by a company to produce goods or services. These costs can include direct and indirect expenses, such as the cost of materials, labor, rent, utilities, depreciation, and taxes. Direct costs are those that are directly related to the production process, such as raw materials and labor. Indirect costs are those that are not directly related to production, such as rent and utilities.

Why Does the Cost of Production Matter?

The cost of production is essential for businesses because it impacts the pricing of goods and services. If the cost of production is too high, the business may not be able to price its products competitively, leading to a loss of market share. On the other hand, if the cost of production is too low, the business may not be able to cover its expenses and make a profit. Therefore, it is crucial to understand the cost of production to set prices that are both competitive and profitable.