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Opportunity Cost Explained: Weighing Choices in Business Decisions
Chapter 13, Problem 2(choose chapter or problem)
Give an example of an opportunity cost that an accountant might not count as a cost. Why would the accountant ignore this cost?
Questions & Answers
QUESTION:
Give an example of an opportunity cost that an accountant might not count as a cost. Why would the accountant ignore this cost?
ANSWER:Step 1 of 2
Opportunity cost is the cost of forgoing the next best alternative when making a decision. It's like when you choose to spend your time studying rather than hanging out with friends, the fun you could have had is your opportunity cost.
In the business world, opportunity cost plays a crucial role in decision-making. It's essential to understand both explicit and implicit costs in a business context. Explicit costs are the direct costs of producing goods or services, like the cost of raw materials or salaries. Implicit costs are the indirect costs, like the income given up by not choosing the next best alternative.
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Opportunity Cost Explained: Weighing Choices in Business Decisions
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Discover the principle of opportunity cost, distinguishing between explicit and implicit costs. Using the example of Hanna's Pizzeria, grasp how business decisions weigh the costs of forgone alternatives. Learn how these costs influence financial and economic choices.