1.5.5 Business Choices

• Opportunity Cost

  the loss of the next best alternative when making a decision
• Due to the problem of scarcity, choices have to be made about how to best allocate limited resources amongst competing wants and needs
• Trade off

  • occurs when two things cannot be fully achieved
  • Having more of one thing may mean having less of another
• Product (trade-off)

  • Choosing to spend money upgrading an existing product - result in loss of next best alternative - could be research and development on a new product
• Customer sales (trade off)

  • Firm selling organic avocados offered a supply contract by supermarket that wants to buy all of stock each month, but at a low price.
  • supermarket is prestigious customer
  • firm decides not to accept contract opportunity cost (loss of prestigious customer) is worth less than the lost revenue to existing customers
• Market Research (Trade off)

  • Foregoing market research may help the business to get its product to market quicker
  • However, the trade-off is that the product may not have the features/qualities desired by the market
• Business ownership (trade-off)

  • Choosing to operate as a partnership will mean that a business loses the benefits of operating as a private limited company (Ltd) .
• Promotional methods (trade-off)

  • limited finance for promotion - choose between methods.
• Pricing strategy (trade-off)

  • If a business decides to use a competitive pricing strategy, it loses the opportunity to price skim