Page 181 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes (iii) PP’ to be revealed by the line X-object and Y-various combinations of the object. This line is known
as the X-object to the output, Y has to sacrifice the opportunity to produce the object. The same as the Y,
X-object is called opportunity cost. It can be concluded from the figure that, X-the opportunity cost of
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one unit of item is Y = 2Y. This means that the amount of the means of production may produce a

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unit of the X object. The same quantity of commodity Y may produce 2 units. Hence Y-object, such as
X- item 2 is the opportunity cost. Similarly, X-object, as the Y-th opportunity cost of one unit of item
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is = 0.5 Y. This means the amount of the means of production using the Y-th object is to produce a

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unit of the same from the Y-0.5 unit of the commodity can be produced. Therefore X, the Y-th opportunity
cost of the object is 0.5. In short, an instrument to be
used in a specific job opportunity cost is the price of You Must Know
the instrument, which can be received from its second
best option. We should also note that the undercurrent Both explicit and implicit cost are included in, the
of the concept of opportunity cost is not money opportunity cost of production. The opportunity
payments but sacrificed opportunities or alternatives. cost of an object to produce the opportunity to
achieve the object, the value of any other commodity
For example, a firm that uses its own proprietary production opportunity is discarded.
and self that means do not pay for its own
means, but they are also opportunity costs,
because their extracts are used to produce one object to another object that could have been
produced by their assistance, has to be discarded. Self-mastery and self-contained cost is the cost
of resources used. In contrast to outsiders by the firm and their services are paid cash for goods
are called Explicit Costs. The opportunity cost includes both explicit costs and implicit costs.
The real cost is the cost to their fulfillment by the owners of the means of production;
suffering, sorrow, trouble, etc. have to bear.

5. Economic Cost

In economic analysis, the economic cost, accountancy costs and use of their own proprietary tools mean
all costs are covered.
Economic costs may be defined as those monetary payments a firm must make to those outsiders
who supply resources and non-expenditure payments of self-owned and self-employed resources
which they could have earned in their best alternative opportunities.
Therefore, only the Explicit Costs are included in cost accountancy. In contrast, the Economic Costs
include both Explicit Costs and implicit Costs.
The notion of economic cost can be clarified with the example of cost required to get eduction in college in a
year. Suppose, the fee given to college to get education in one year including hostel cost and other expenses
is 6000. In other words, Accountancy Cost of education in a year in a college is 6,000. But the economic
costs of the additional monetary costs is included the income, for a student to study in college identifiable
time and money by using an alternative work could earn. If it is not then any college work throughout the
year 5000 could earn. College of 6,000 to be spent on education and the bank rate of 5 per cent per year in
the form of interest could have 300. Therefore
economic cost to get education in a college in a year will The Economic Cost is Different from
be (Monetary Costs + Discarded Earnings) leaved Accountancy Costs
Interest + 6,000 + 5,000 + 300 = 11,300 will be. The
economic costs include both the accountancy costs and High costs are only included in cost accountancy.
the opportunity cost, therefore, an object that reflects the In contrast, the economic costs, explicit costs and
true costs of production. implicit costs are both included.

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