Page 6 - PowerPoint Presentation
P. 6
DECISION MAKING
Opportunity Costs
• An opportunity cost is the potential benefit that is given up
when one alternative is selected over another.
• If we are confronted with choice that requires sacrificing some or
other opportunity, then the choice must compensate us for what
we are loosing.
• In other words and opportunity cost is the value of an opportunity
forgone.
• Opportunity costs are always relevant when using the
incremental approach.
• To calculate the monetary value of an opportunity cost =
lost contribution.
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