Opportunity cost and marginal opportunity cost

Opportunity cost and marginal opportunity cost

Opportunity cost: It is the cost of availing one opportunity in terms of loss of other opportunity. In other words, it is the cost of shifting resources from one use to the another. It is equal to loss of output in use-1 when resources are shifted from use-1 to use-2. It is also called total opportunity lost.

Marginal opportunity cost: It refers to loss of output of one goods to gain an additional unit of other goods. let's say, if we shift resources from production of goods-y to production of goods-x then we loss 10 units of goods-Y and we gain 2 units of goods-X, then marginal opportunity cost= loss/gain therefore 10/2=5, In easy word, to produce one unit of goods-X we have to sacrifice 5 unit of goods-Y.It is also called marginal rate of transformation.

Table-2


Units of Goods-X Units of Goods-Y Opportunity cost Marginal opportunity cost
0 100 - -
10 90 10 1
20 70 20 2
30 40 30 3
40 0 40 4                                           

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