The concept of Opportunity Cost

Opportunity cost is the value of the next best alternative foregone (sacrificed). Alternatively, it is the cost of foregone opportunity (alternative). For instance, suppose a given piece of land, which is equally fit for the production of rice, wheat and grams income from cultivation is Rs.50000, Rs.45000 and Rs.40000 respectively. Suppose with the same cost of cultivation, he decides to produce rice. The opportunity cost of producing rice will be Rs.45000 because it is the value of the next best alternative. Thus, the opportunity cost of any commodity is the amount of other good that has been given up to produce that commodity. That is why the opportunity cost is also called an opportunity lost. Opportunity cost is the cost of availing one opportunity in terms of the loss of the other opportunity.

 

µ Marginal Opportunity Cost / Marginal Rate of Transformation (MRT)

MRT is the ratio of a number of units of a commodity sacrificed to gain  an additional unit of another commodity.