Opportunity cost

• What is the definition of opportunity cost?

  The sacrifice when an alternative is chosen
• What is the opportunity cost of increasing product quality in operations?

  Higher Quality Assurance and raw material costs
• What is the sacrifice made when HR chooses to improve employee skill sets?

  Increased training costs and reduced short-term productivity
• What is the sacrifice associated with using price penetration in marketing?

  Lower profits in the short term
• What is the sacrifice when finance chooses to use equity for financing?

  Giving up control of the business
• How does opportunity cost relate to decision-making in business?

  • Opportunity costs relate to future choices.
  • Difficult to quantify exact amounts.
  • Challenges managers in making correct decisions.
  • Hard to assign numerical values to choices and sacrifices.
• Why is it difficult to quantify opportunity costs?

  Because they relate to future choices
• How can mentioning opportunity cost benefit a business evaluation?

  It highlights the difficulty in quantifying decisions
• What is a potential exam question regarding opportunity cost?

  Explain the concept of opportunity cost