What is the opportunity cost of production?

The concept of "alternative costs" can be attributed toplanning and financial terminology. It is connected with the use of material means, raw materials, technical, human and other resources, which play an important role in the production process. Especially important is the accurate accounting of such costs in enterprises that are not quite profitable or are experiencing some other difficulties. Rational use of the entire material and technical base in this case can help the company stay afloat.

Alternative production costs areresources spent on the production of one type of product and evaluated from the perspective of lost opportunities to use them for other, alternative purposes. So, on the account at the enterprise there is some money sum. And it is necessary to update the technical equipment - to buy several machines. At the same time, more raw materials are needed for production. The machines will be bought-raw materials will not be bought, and vice versa. The company management should calculate the options and determine which investment will be more profitable and will bring the production more benefits.

Consequently, the opportunity cost isCosts of this kind that, when applied in one place, can not be applied in another. Their main properties are limited and rare. If a woman spends her money on buying cosmetics, at the same time buy them medicines or products, a thing, etc. she already can not. Therefore, using any resource in one area, we lose the opportunity to apply it somehow. This law applies to everyday human life and activities, and financial, scientific, industrial spheres in the size of entire countries, states. The interests of industrial enterprises are especially affected.

By virtue of this singularity, every solution ofproduction, output of products, goods, etc. forces to refuse to use the same resources for manufacturing other products or other goods. And the costs spent on production, and there are alternative costs.

The farmer cultivates suchagricultural crops, like zucchini and tomatoes. Under each allocated a certain area. But one day the farmer decided that tomatoes should be grown more. To do this, he will have to take away part of the plot from the beds with zucchini, reduce the area of ​​the land on which zucchini grow. The alternative costs of each tomato shrub with fruits can be expressed in the number of courgettes that the farmer will now lose, using land resources for tomatoes.

It is clear that, although this example is given forproducts of two kinds, in fact, they are immeasurably greater. In this case, you can measure the opportunity costs with the help of money. Then the costs will be taken for the difference between the profit that can be obtained with the most profitable of all alternative uses of resources, and the profit that can be obtained in reality.

It should be remembered that not all costs in theproduction are considered alternative. Usually, any use of resources is planned, distributed and accounted in advance (renting a building when opening a new office, buying office equipment and other equipment, carrying out repairs in the building, etc.). These costs are not involved in the economic choice and the function of the alternative is not fulfilled.

Speaking about the alternative costs for the company,it is necessary to mention their external and internal character. External - this is explicit, this includes the payment of workers, payments for raw materials, fuel, transportation, energy. Those. it is money that pays for the resources that the enterprise has acquired. Implicit, or internal - these are the costs of using resources, which can be managed by the owners of the enterprise, firms, companies, etc.