Marginal Opportunity Cost

Marginal Opportunity Cost – Meaning, Formula And Calculation

Marginal opportunity cost: Welcome to Biznex. It’s nice having you here.

In this post, we will be discussing about marginal opportunity cost and everything that has to do with it.

For the business owners reading this article, this will be a piece of beneficial information for you.

This is because you will learn about marginal opportunity cost and what it has to do with your business.

And for the general individual or student reading this post, you’ve come to the right place to get the information you are looking for about this topic.

In no time, let’s get straight to the pillar of this content by starting with the definition of marginal opportunity cost.

 

What is marginal opportunity cost?

This can simply be defined as a production term that illustrates the amount of value (Money) a company will be adding to the overall production cost to produce an extra unit of goods in the company or firm.

That’s it.

Hope you we’re able to comprehend the definition?

If not, then let me make it easier by giving some analysis and explanation below.

 

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Marginal opportunity cost analysis and explanation

This section will give some straightforward examples of marginal opportunity costs.

This will also aid you in relating it with real-life experience if you manage any business or you are the CEO.

 

Example

For instance, Coca-Cola, one of the world’s most prominent beverages, produces 1000000 (1Million) of Coca-Cola bottled drinks in a day for the United States (US) only.

Now, if the demand (Number of people willing to buy) for Coca-Cola increase from 800,000 to 1,200,000 (1.2 Million) within a week, then they will be some tweaks in the level of input in the Coca-Cola company.

This is what will happen.

If Coca-Cola’s current worker number size is 80,000, they may be increasing their number to 100,000 or 120,000 workers.

However, Coca-Cola’s primary production may not be occupied by humans. This can be an augmented robot.

But with this, the number of active robots will also increase in order to sum up the efficiency and productivity of the company.

Moving further with my illustration, it’s time to fetch the marginal opportunity cost in the Coca-Cola production and input changes.

Now since the level of demand for this product has increased and with the level of input of the company, we one other thing that will definitely be improved.

This is the “Cost of production.”

Here’s why

The Cost of production will automatically increase when Coca-Cola employs new workers in the company, especially in the production sector.

This is so because Coca-Cola will have to pay the newly employed workers in the company.

Now, if Coca-Cola spends $50,000 on producing 800,000 before the demand increase and now spends $60,000 after the rise of the demand, then the marginal opportunity cost is $10,000.

That’s just it.

Let’s move to the other sections of this post.

 

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Marginal Opportunity cost formula – How to calculate it

If you still don’t grasp my above illustration, this is the right section to pay full attention to.

Here, I will show you the marginal cost formula with an example.

This will be informed of the calculation.

And by the end of this calculation, you should be able to get the complete picture of what marginal opportunity cost realty is.

Now, let’s begin with the formula.

The formula for marginal opportunity cost = Unit of one good sacrificed / More unit of other goods produced.

Therefore, MOC = Change in Y / Change in X.

 

Calculation of Marginal opportunity Cost

In this section, we will only be dealing with the calculation of marginal opportunity cost by using the formula above.

Question example

Calculate the marginal opportunity cost when Coca – cola 10,000 Coca – cola Fanta is produced

Table

Coca – cola fanta 5,000 6,000 7,000 8,000 9,000 10,000
Coca – cola 200,000 190,000 170,000 140,000 90,000 50,000

 

To calculate this, we will find the change in the production of Coca-Cola Fanta and Coca-Cola.

=  loss of Coca – cola / Gain of coca – Cola Fanta

= 90,000 – 50,000 / 10,00 – 9, 000

= 40,000 / 1,000

= 40

Therefore, our marginal opportunity cost is 40.

Moving on.

 

Opportunity Cost Vs. Marginal Cost

Here, we will be glancing at the difference between opportunity Cost and Marginal Cost.

We will be opening the chapter with opportunity costs.

 

What is opportunity cost?

This is referred to as an economic concept that showcases the relationship between choice and Scarcity.

It is the root function of marginal opportunity cost.

While for marginal Cost, can be defined as an economic function that stands in place for the Cost of producing more units.

 

Conclusion

Marginal opportunity cost is a beneficial concept for the economy and every effective firm.

Understanding this term comes with different benefits for CEO and business cooperation.

 

Most frequently asked question

Here, we will picking and explaining some popular question on the internet concerning this topic.

1.How do I calculate marginal opportunity cost?

To calculate this, simply use the formula below

Change in y / Change in X

You can check the above for a better understanding of this formula in this post.

2. What is the Marginal rate of transformation?

This is defined as the number of units of a good (Product) that will be sacrificed to produce another unit of another good.

1 thought on “Marginal Opportunity Cost – Meaning, Formula And Calculation”

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