What is the concept of opportunity cost?

In micro-economic theory, the opportunity cost, also known as alternative cost, is the value (not a benefit) of the choice of a best alternative cost while making a decision. Opportunity cost is a key concept in economics, and has been described as expressing "the basic relationship between scarcity and choice.

The law of increasing opportunity cost is the concept that as you continue to increase production of one good, the opportunity cost of producing that next unit increases. This comes about as you reallocate resources to produce one good that was better suited to produce the original good.

A benefit, profit, or value of something that must be given up to acquire or achieve something else. Since every resource (land, money, time, etc.) can be put to alternative uses, every action, choice, or decision has an associated opportunity cost.

Executives are often involved in making difficult decisions. One such executive was considering whether to move his company and workers to a new office in downtown Columbia, SC. The new rent would be greater, but the new location would be better for his business.

This process of weighing what is being sacrificed in order to obtain the future situation is called the “opportunity cost.” In this case , whether it is better to move to the new location and pay higher rent in order to make more profit because of a better location, takes a lot of research and investigation. It’s never easy but an executive weighs the two and sometimes puts his job on the line to help his company profit.