Final answer:
The differential cost is the incremental cost difference between two alternatives, central to cost/benefit analysis. It is different from opportunity cost, which is the value of the best alternative foregone. Both concepts are important in decision-making, with consideration for factors like time, along with monetary costs.
Step-by-step explanation:
Differential cost, which is the difference in costs between two alternatives, is often known as incremental cost. It is a crucial concept in cost/benefit analysis where decision-makers weigh marginal costs against marginal benefits. The differential cost is not the same as opportunity cost, although both are important in business decisions. The opportunity cost is the value of the next best alternative foregone as a result of making a decision. It can vary for each individual depending on their preferences and available options.
Determining opportunity cost may involve not just monetary costs, but also other factors such as time, which can sometimes make the opportunity cost higher than the actual price paid for an item or action. For instance, spending time on a less profitable undertaking could represent a higher opportunity cost if that time could be spent on a more lucrative activity.
In decision-making processes, a Cost Benefit Analysis chart with costs on one side and benefits on the other can be used to visualize these comparisons, aiding in making a better-informed choice.