HOW CAN OPPORTUNITY COST BE USED IN DETERMINING THE PROFIT?

Abstract

Opportunity cost is an economic concept which takes on multiple forms of expression. One of these is the foregone profit as a result of the manufacturer’s option to produce goods by quality classes or of its choice of goods with certain values of gross margin and production lead times. This paper is focused on presenting some situations of avoiding opportunity costs within the meaning of foregone profit. To this end we contemplated two situations: i) one where manufacturers may opt, or not, to produce branded goods; ii) another where a restrictive factor (technical/physical and financial) may influence the manufacturer’s decision-making in what type of goods should be manufactured.

Keywords

• opportunity cost
• forgone profit
• production quality
• production structure