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boldness is the act of being bold

Opportunity cost is the value of the next best alternative when a choice is made to pick one option over another, and is perceived at a different value by each person. Resources are scarce so using them in one way forgoes the use of them in another way, and this forgone option, which would have been the next best alternative use of the resource, is considered the opportunity cost. (https://www.bmj.com/content/bmj/318/7197/1551.full.pdf)

Using scarce resources in one way prevents the use of them in another way and as such, there is a choice to be made with how you would like to allocate your resources to best meet your desires. The option that you sacrifice (the next best alternative) is your opportunity cost - the value of what was forgone when you made your choice. (Layton, A., Robinson, T.J.C. & Tucker, I.B., 2015. Economics for today 5th Asia-Pacific., South Melbourne: Cengage Australia.)

Resources are scarce (finite) so alternative options are given up when choice is made to allocate resources in another way.

In a business, the costs of running the operations are what is referred to as accounting costs. This includes wages, utility bills, overhead costs, and rent. Economists however, go beyond the explicit costs and consider opportunity costs as well in what is known as economic costs.

Accounting costs = explicit costs of operating business

Economic costs = Accounting cost + opportunity cost

Economic profit: In this way, a business can evaluate whether its decision and the allocation of its resources is cost-effective or not, and whether resources should be reallocated. When making a cost-benefit analysis, business should make its decision based on if it makes a positive economic profit, which suggests that the payoff of the chosen option is better than the opportunity cost (the next best alternative).

In this case, where the revenue is not enough to cover the opportunity costs, the chosen option may not be the best course of action. (Layton, A., Robinson, T.J.C. & Tucker, I.B., 2015. Economics for today 5th Asia-Pacific., South Melbourne: Cengage Australia.)

When economic profit is zero, all the explicit and implicit costs (opportunity costs) are covered by the total revenue and there is no incentive for reallocation of the resources. This condition is known as normal profit.

Comparative vs Absolute Advantage
When a nation, firm or individual can produce a product or service at a relatively lower opportunity cost compared to another, they are said to have a comparative advantage. In other words, a country has comparative advantage if it gives up less of a resource to make the same number of products as the other country that has to give up more.

For example,

1 month’s production Opportunity cost To make 100 tonnes of tea, Country A has to forgo 20 tonnes of wool which means for every 1 tonne of tea produced, 0.2 tonne of wool has to be forgone. Meanwhile, to make 30 tonnes of tea, Country B needs to forgo 100 tonnes of wool, so for each tonne of tea, 3.3 tonnes of wool is forgone. In this case, Country A has comparative advantage over Country B for the production of tea because it has a lower opportunity cost.

On the other hand, to make 1 tonne of wool, Country A has to give up 5 tonnes of tea, while Country B would need to give up 0.3 tonnes of tea, so Country B has comparative advantage over the production of wool.

When a country produces to its comparative advantage and trades with other countries for those products it does not have comparative advantage to produce, output and consumption is maximised.

Absolute advantage on the other hand refers to how efficiently one party uses resources to produce the goods and services compared to others, with no consideration to opportunity costs. For example, if Country A can produce 1 tonne of wool using less resources compared to Country B, then it has an absolute advantage.