<u>Opportunity cost occurs because of a producer’s need to allocate resources.
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Further explanation:
Brief about opportunity cost:
The opportunity cost of an alternative is the summation of all potential gains from all other alternatives that could be earned. In simple terms, it’s the sacrifice made when one alternative is chosen, and resources are allocated in that. In deciding which alternative to choose, an economic agent compares the opportunity costs of all alternatives and selects one with the lowest opportunity cost.
Producer’s decision using opportunity cost:
A producer needs to allocate resources to produce goods and services. A producer decides what to produce and how much quantum to produce. In that, a producer allocates resources in a particular alternative among many alternatives. A producer takes this decision based on opportunity costs and chooses one which has the least opportunity cost. By taking the decision in this way, a producer maximizes his profits and ensures that no profitable opportunity misses out. A producer always faces scarcity of resources and thus, taking a right economic decision based on opportunity cost analysis, ensures maximum profits.
Learn more:
1. Learn more about the Demand and Supply of goods
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2. Learn more about the Law of Demand and Supply
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3. Learn more about Demand and Supply diagram
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Answer details:
Grade: Senior School
Subject: Economics
Chapter: Supply
Keywords: opportunity cost, occurs, because, producer’s need, to, allocate, resources, spend resources, allocate resources, resources, protect resources, limit resources, producers, supply, producer’s decision, allocating resources, allocation
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