I’m working on an economics assignment right now, and I’m not sure if I’m approaching the concept of opportunity cost correctly.
The question states that you have a choice of selling flowers either on the sidewalk or in a downtown. However, to sell flowers in a restaurant, you need to pay the headwaiter $30 and spend $10 on transit. You expect to make $50 from selling flowers downtown.
How does one determine the opportunity cost of selling on the sidewalk from the given information? I’m thinking somewhere along the lines of subtracting the extra costs of selling downtown (30 + 10 = 40) from $50, thus resulting in an opportunity cost of $10. But I feel like I might be completely off-base.
There’s another component of the question that you can sell flowers for $8 on the sidewalk, from which you have to determine the opportunity cost of selling downtown…but I suppose that’s a whole different story.
Any help would be greatly appreciated!
3
✅ Answers
? Favorite Answer
The opportunity cost is the loss you would experience from taking one action over another. Thus the opportunity cost of selling the flowers downtown is the $10 you could make by selling them in the restaurant. The opportunity cost of selling them in the restaurant is the $8 you could make by selling them on the sidewalk.
I’m assuming your question means that you can either 1) sell flowers on a sidewalk that isn’t downtown, and realize $8 with no costs, or 2) sell flowers in a downtown restaurant for $50 and have associated costs of $40
In that instance the opportunity cost of selling them downtown is the $8 you would have realized from selling them on a sidewalk. The opportunity cost of selling on the sidewalk is the $10 you’d net from selling them downtown.
Opportunity cost is basically when you have two choices and can only pick one or the other, what you’d have realized from the choice you don’t pick.
The opportunity cost is the loss of the next best alternative to the chosen method.
Therefore the opportunity cost of selling the flowers in a restaurant is the profits that would be made by selling them on the sidewalk (and the opportunity cost of selling them on the sidewalk is the profits that could be made selling them in the restaurant).
Hope this helps