Question

What is the opportunity cost of making a component part in a factory with no excess capacity?

a. cost of the production given up in order to manufacture the component.
b. net benefit foregone from the alternative use of the capacity required.
c. fixed manufacturing cost of the component.
d. variable manufacturing cost of the component.

Answer 1

The opportunity cost in a factory with no excess capacity is the net benefit forgone from not producing the next best alternative with the same resources.

Step-by-step explanation:

The opportunity cost of making a component part in a factory with no excess capacity is the net benefit foregone from the alternative use of the capacity required. This addresses the idea that in order to produce one item, a company must forgo the production of something else which could be made using the same resources. In a scenario with no excess capacity, this means that the factory's opportunity cost is the most profitable alternative product that could have been produced instead. The opportunity cost is not merely the direct financial cost, such as the fixed or variable cost, but encompasses the broader economic concept of foregone alternatives, including potential revenue from the next best alternative use of the resources.