Concept of Opportunity cost and Marginal Opportunity cost

Opportunity Cost

• Opportunity cost is a term which means the cost of something in terms of an opportunity foregone, or the most valuable foregone alternative.
• In other words, the opportunity cost of a given commodity is the next best alternative cost or transfer costs. 
• As productive resources are scarce and can also be put to different uses.
• Therefore, the production of one commodity means not producing another commodity.
• When one opportunity is availed and the other is lost.
• Opportunity cost is the cost of availing one opportunity in terms of the loss of the other opportunity.
• The commodity that is sacrificed is the real cost of the commodity that is produced. This is the opportunity cost.
• It can also be defined as the value of a factor in its next best alternative.
• Opportunity cost need not be assessed in monetary terms, but rather, is assessed in terms of anything that is of value to the person or persons doing the assessing. 
• The consideration of opportunity costs is one of the key differences between the concepts of economic cost and accounting cost. 
• Assessing opportunity costs is fundamental to assessing the true cost of any course of action. 
• The simplest way to estimate the opportunity cost of any single economic decision is to consider, “What is the next best alternative choice that could be made?” The opportunity cost of paying for college fees could be the ability to buy some clothes.\
• The opportunity cost of a vacation in Goa could be the payment for buying a motorbike.
• It is to be noted that opportunity cost is not the sum of the available alternatives, but rather the benefit of the best alternative of them.
• It is known in economics as the production possibility curve
• For example, suppose a producer can produce a car or a computer with the money at his disposal. 
• If the producer decides to produce a car and not a computer, then the real cost of the car is equal to the cost of a computer, i.e., the alternative foregone.
• Let us take another example, if a company decides to build hotels on vacant land that it owns, the opportunity cost is some other thing that might have been done with the land and construction funds instead.
• In building the hotels, the company has forgotten the opportunity to build, say, a sporting center on that land, or a parking lot, or a housing complex, and so on.
• In simpler terms, the opportunity cost of spending a day for a picnic with friends could be the amount of money you could have earned if you had devoted that time to working overtime.

Marginal Opportunity cost

• It refers to additional opportunity cost when a unit more of Good-X is produced by withdrawing some resources from the production of Good-Y.
• It is measured in terms of loss of output of Good-Y for more of Good-X.
  
• Algebraically, MOC is expressed as:

  $\frac {\Delta Y(Loss of output)} {\Delta X (Gain of output)}$

• It can also be described as a rate at which output of Good-Y is to be sacrificed for additional units of Good-Y.
• This refers to the slope of the Production Possibility Curve.