Question

Every decision has an Opportunity Cost due to the nature of scarcity, there is always a better alternative not chosen, therefore, there is always an opportunity cost. “The opportunity cost of an alternative is what you give up to pursue it” (Froeb, McCann,Shor & Ward, 2016). When you go to a Maroon 5 concert, you give up $100 of benefits you would have received if you had gone to a Beyoncé concert. Also, you would also avoid $80 of cost for the Beyoncé concert. According to the definition below, the opportunity cost of seeing Maroon 5 concert is $100 - $80 = $20. Please delve into the statement there are always opportunity costs. How can an individual make the best decision? Is there a best decision? Would one miss an opportunity not attending one of the concerts? Include a minimum of one reference.

Answer 1

From an economic perspective, opportunity can be fundamentally defined as the next best option or alternative foregone or sacrificed to avail any one particular option or opportunity by any individual. Therefore, practically, every option chosen or decision undertaken by an individual or entity in life involves an opportunity/s in a sense that he or she always forgoes or sacrifices the other options or decisions available to them to choose the one that is preferred. For example, by choosing to attend 4 years college to pursue undergraduate studies, an individual essentially sacrifices the opportunity to engage in a full time or part-time job or business or practice personal hobbies during the concerned time period. As a more simpler and relatively rudimentary example, by cooking and dining at home, an individual sacrifices the option to have a tastier and a more delicious meal at any restaurant outside. Hence, every individual decision or opportunity undertaken or availed by us in our regular life involves opportunity cost/s in various and multiple capacities.

In Economics, the term best can be ideally replaced by rational, and in the context of behavioral optimization or decision-making process, the main goal of any rational economic entity is to maximize the utility or satisfaction obtained from undertaking any decision given various other possible options or decisions under consideration. Now, this satisfaction or utility can be represented by various parameters under various concerned contexts. A consumer or buyer of various goods and services would undertake consumption decisions based on the interaction between his or her personal income and the market price of the concerned good and services considered by the consumer/buyer for purchase or consumption. Therefore, the best or the most rational consumption decision, in this case, is practically contingent on various economic factors or attributes such as the income level of the respective consumers or buyers and the market price of the goods and services under consideration which collectively determine the real purchasing power of the consumers or buyers. Thus, to sum up, the best or the most rational consumption decision basically ensures the highest satisfaction or utility level obtained by any consumer or buyer given his or her real purchasing power.

Now, on the other hand, a firm or a company would undertake production or operational decision/s based on the profit-maximizing or cost-minimization conditions or principles. In this context, the firm or company would ideally choose the operational or production decision among multiple possible decisions or options that would either maximize the overall profit level obtained from such decision or minimize the total cost or expense incurred by the firm/company by undertaking the particular decision. Hence, it involves a thorough and profound comparative analysis and estimation of the possible monetary costs/expenses and the potential revenue generation from the same among all the decisions or options under consideration. Therefore, from an economic standpoint, the best alternative decision chosen essentially pertains to the most rational decision or option chosen by the concerned entity which is associated with benefit/utility maximization given the various conditions and factors/attributes that would evidently affect the same from choosing any decision or option.

In this instance, from a general point of view, as the individual gives up an overall benefit of $100 by attending the Maroon 5 concert and choosing to not attend the Beyonce concert. Hence, considering that the Beyonce concert provides an opportunity to the individual to gain a benefit worth of $100, he or she gives up the opportunity to enjoy the value of the benefit of the Beyonce concert by deciding to attend the Maroon 5 concert. On the other hand, if he or she would attend the Beyonce concert instead, then the individual practically misses the opportunity to enjoy the value or the benefits obtained from paying the price to attend the Maroon 5 concert. Therefore, essentially, the foregone opportunity of attending either concert is contingent on both the economic and perceived value or benefits obtained by the individual from attending each concert which again conceptually reiterates the economic concept of decision-making process dictated by satisfaction/benefit/utility maximization from any particular decision or option given the relevant conditions and factors affecting this process.

Reference

https://www.joshuakennon.com/everything-in-life-has-an-opportunity-cost/#:~:text=In%20economics%2C%20opportunity%20cost%20is,life%20has%20an%20opportunity%20cost.&text=%5Bmainbodyad%5DEach%20of%20us%20has,costs%20for%20the%20same%20actions.