Austria economists modified the concept of ‘Real cost’ and presented the concept of opportunity cost. Resources are limited to unlimited needs and hence the production of one goods means the sacrifice of the other.
According to Benham, “ The opportunity cost of anything is the next best alternative that could be produced instead by the same factors or by equivalent group of factor costing the same amount of money.”
Hence, opportunity cost of a factor refers to its value available in its next best alternative use.
The concept of opportunity cost can be explained with an example. A person can obtain three services: Defee college Lecturer ( Salary Rs. 40,000), Bank officer ( Salary Rs. 28000) and sales officer ( Salary Rs. 20,000). The person will not opt the job of a Degree college Lecture and sacrifice two another available Jobs. The nect best alternative sacrificed by the person is the Job of bank officer with salalry of Rs. 28,000. Hence, the opportunity cost of selected Job ( Salary Rs. 40,0000) is Rs. 28,000 (i.e., the salary of next best alternative).
