Opportunity Costs Impact
Explain why the consideration of opportunity costs may be very relevant to a firm. How can opportunity costs affect a business decision? Use an example to support your answer.
a company forgoes when choosing one alternative over another. This consideration is crucial for making informed business decisions as it helps firms evaluate the relative profitability and efficiency of different options. By understanding opportunity costs, a firm can allocate its resources more effectively to maximize potential returns.
For example, consider a firm with $1 million to invest. The firm can either invest this money in a new product line or expand its existing production capacity. If the new product line is expected to generate a 10% return, while the expansion of existing production capacity is expected to yield a 15% return, the opportunity cost of investing in the new product line is the higher return that could have been earned by expanding the existing capacity. Choosing the new product line would mean forgoing the additional 5% return that the expansion…
a company forgoes when choosing one alternative over another. This consideration is crucial for making informed business decisions as it helps firms evaluate the relative profitability and efficiency of different options. By understanding opportunity costs, a firm can allocate its resources more effectively to maximize potential returns. Opportunity Costs Impact
For example, consider a firm with $1 million to invest. The firm can either invest this money in a new product line or expand its existing production capacity. If the new product line is expected to generate a 10% return, while the expansion of existing production capacity is expected to yield a 15% return, the opportunity cost of investing in the new product line is the higher return that could have been earned by expanding the existing capacity. Choosing the new product line would mean forgoing the additional 5% return that the expansion…
