Let’s assume that our inheritor (from the example above) chooses to purchase $15,000 of stock. That $15,000 is a sunk cost, spent to purchase the stock regardless of whether it’s sold or held. The opportunity cost is the 5% of the CD, representing what he could have earned if th...
Example 4 – Study Related Opportunity Cost Example Celeste is currently working in the Audit Division of a large Big 4 firm and drawing an Annual Pay of $50000. She plans to pursue her MBA from Wharton, which will cost her $100000, and she will have to stay without work for 2 years ...
In another example, a small business owns the building in which it operates, and thus pays no rent for office space. But this does not mean that the company's cost for office space is zero, even though an accountant might treat it that way. Instead, the small business owner must ...
that may be difficult to quantify in the analysis. For example, arisk averseinvestor may consider the risk of an investment in relation to its expected return more important than its opportunity cost. Thus, opportunity cost is not always the deciding factor when making the final investment choice...
Example #1: A businessman decides to open a 7-11 on a piece of land that he owns, instead of a bar. The opportunity cost of opening up the 7-11 is the money that he could have made opening up the bar. Example #2: A kid can either buy a new bike or an Xbox 360 gaming syste...
Example: U.S. and Japan Suppose the U.S. and Japan produce only two goods: CD players and wheat. Absolute advantage? Who has an absolute advantage in producing each good? Comparative advantage? Who has a comparative advantage in producing each good? Gains from trade Opportunity cost of CD ...
Opportunity Cost | Definition, Calculation & Types Production Possibilities Curve | Definition, Graph & Example Trade-Off in Economics | Definition, Theory & Examples Start today. Try it now CLEP Social Sciences and History Study Guide and Exam Prep 69 chapters | 400 lessons Ch 1. CLEP...
Part3Example Q:Isthereanyfreemealintheworld?Willyoualwaysacceptthefreemeal?Meal—20dollarsBusiness+200dollars ↓ Freemealisnotthebestalternative.Say“no”tothefreemeal.Part4Conclusion TheprincipleofOpportunityCost:alleconomicdecisionsmadebyindividualsorsocietyarecostly.Thecorrectwaytomeasurethecostofachoiceisits...
Opportunity Cost Example As an example, you might use opportunity cost to help you decide between two jobs. Let’s say those two jobs are a position as a waiter or as a cashier. The waiter job pays $20 per hour, while the cashier job pays $15. You decide to choose a cashier job....
When considering two different securities, it is also important to take risk into account. For example, comparing aTreasury billto a highlyvolatilestock can be misleading, even if both have the same expected return so that the opportunity cost of either option is 0%. That's because the U.S...