Difference Between Opportunity and Marginal Cost
Opportunity vs Marginal Cost
Cost is the value that is considered to produce an item or the alternative that is relinquished in favor of a decision to choose another product or item. Costs are classified according to how they are applied; examples are marginal cost and opportunity cost.
Opportunity cost is a key concept in economics and finance as it expresses the relationship between scarcity and choice. When a consumer picks a product from among several choices, the cost related to the second best choice is the opportunity cost. For example, the opportunity cost of eating roast would be eating the seafood platter. Ordering both would mean paying more which is another opportunity cost for the diner. It aims at ensuring the effective use of scarce resources and can either have monetary value or not, such as, the value of lost time, output, utility, and any benefits or pleasure derived from an undertaking. It forms the foundation of marginal theory of value and the theory of time and money.
Marginal cost, on the other hand, is the cost of producing an additional unit. When the quantity of a product changes by one unit, the change in total cost is the marginal cost. It is also a basic concept of economics and finance. For example, in producing additional bags, a company will have to buy additional equipment and hire additional workers; the marginal cost of producing additional bags would be the cost of the equipment and the salaries of new workers.
The increase and decrease of fixed costs depends on the volume of production. While variable terms are dependent on volume, the constant terms are not and occur according to lot size. All additional costs acquired during production of additional units are marginal costs. In order to have a good marginal cost, the marginal benefit of producing additional products must exceed or must be at least equal to the marginal cost. These factors can affect marginal cost: the presence of positive and negative areas, transaction costs, and price discrimination, among others.
While marginal cost is easily visible, opportunity cost is unseen or is hidden. It is one of the key differences between accounting and economic costs. Ignoring it when there is no particular accounting cost or price, or when it is too low, would give the false belief that the product costs nothing.
1.Opportunity cost is an economic or financial concept that expresses the relationship between scarcity and choice while marginal cost is an economic or financial concept that represents the cost of producing an additional unit.
2.Marginal cost always has a monetary value while opportunity cost can have a monetary value or not.
3.Opportunity cost includes the value of lost time, output, utility, and the benefits that might have been enjoyed if the other choice is made while marginal cost does not.
4.Marginal costs are visible while opportunity costs are not.
5.Marginal cost is the cost incurred during the production of a unit or item while opportunity cost is the cost incurred during the consumer’s choice of which product to buy or use.
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