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The forgone cost is known as opportunity cost. It is also known as the value of the best available alternative which can be resulted after making a decision. Opportunity cost is very important in decision making of the companies because companies need to select the best alternatives available to them and if a company is not able to achieve it's aim then it becomes the opportunity cost for the company. In other words, opportunity cost is resulted when the company selects one alternative over another.
For example, if you have two options to start a business; either to go for a gift shop or to start a small food stall. If you select one option then the other will become your opportunity cost.
For example, if you have two options to start a business; either to go for a gift shop or to start a small food stall. If you select one option then the other will become your opportunity cost.
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Thank you your example make me clear . It helps me better than the definition.
Opportunity cost is the next best alternative forgone. For example if a government plans to build hospital and a school in a rural area it has to give up something. Because as we know resources are scarce and for that choice has to be made. So if government plans to go a head with school then its giving up hospital and thus it becomes the opportunity cost.
That is it gives the benefit it could have enjoyed by constructing hospital.
That is it gives the benefit it could have enjoyed by constructing hospital.
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