Opportunity Cost | One or the Other

#economics #statism #cost

A firm will spend to produce. This is the firm’s cost. They must spend money, but money costs are different from opportunity cost. Opportunity cost refers to the alternative forgone. The firms could have produced something else, but they didn’t. The firms passed up this opportunity. They may have anticipated a higher return. They may have a psychic profit from producing one thing and not another.

Money cost and opportunity cost are different. Say, a firm has two options. One yields more than the other. The firm can only do one, not both, so they must pick one. It’s likely they will pick the one that yields the greatest income. Now, the lower income may yield a higher psychic profit. They might choose that one if that’s the case. All being equal, the firm will choose the endeavor that yields the highest income.

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