Business Choices Quiz PDF

Opportunity cost Definition: Opportunity cost Opportunity cost can be measured as the cost of foregoing the next best alternative In other words, if there is another alternative, then if this is not chosen this is also cost to the business – an opportunity cost Opportunity cost The pro...

Opportunity cost Definition: Opportunity cost Opportunity cost can be measured as the cost of foregoing the next best alternative In other words, if there is another alternative, then if this is not chosen this is also cost to the business – an opportunity cost Opportunity cost The problem: Land, labour, capital and enterprise are limited resources However our wants are unlimited This causes scarcity As business people we need to decide how best to use those scarce resources, we make choices When making important decisions in business, the cost of not selecting an alternative is an opportunity cost Choices and potential trade-offs Definition: Trade-off A trade-off is when less of one is exchanged for more of another. It is also known as a compromise. Trade-off explained In business to achieve two things may not be possible, as there is only so much capital and only so much of other resources. It may mean that the business has to complete less of one thing e.g. marketing in order to do more of something else e.g. new machinery for production When there are choices, a compromise must be made and in business this is called a trade-off Trade-off example scarves Imagine you want to start a shop selling beautiful scarves imported from Ethiopia, made by disabled workers, but then find the import tariffs into the UK are too high. This would increase your costs and push up your prices for silk scarves. However, you have found an alternative supplier in Europe the prices are cheaper and you will make more profit, but the quality is not as good as the Ethiopian scarves What is a possible trade-off and what are the potential opportunity costs in this business scenario? Trade-off example cars vs vans One factory can produce either cars or vans, or some of each with the limited resources available to it To increase car production, resources must be shifted away from van production, and vice versa Can you explain the opportunity cost and trade- off in this trade-off example?