Business choices

Overview

Opportunity cost, the trade-offs a business makes between competing uses of its resources, and how those choices are weighed.

What you need to know

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Questions from this subtopic

Each one with the model answer underneath.

1. 1

   Define opportunity cost in a business context.

   Model answer

   Opportunity cost is the next best alternative foregone when a business makes a decision.

2. 2

   Why does every business decision involve an opportunity cost?

   Model answer

   Because resources are scarce, so choosing one option means sacrificing another that could have been pursued instead.

3. 3

   To which types of business resources does opportunity cost apply?

   Model answer

   Opportunity cost applies to all business resources including money, time, labour and materials.

4. 4

   What is a trade-off in business decision-making?

   Model answer

   A trade-off occurs when a business must give up one benefit in order to gain another.

5. 5

   Why do businesses face trade-offs?

   Model answer

   Because they cannot pursue all options simultaneously due to limited resources.

6. 6

   Give an example of a trade-off between quality and cost that a business might face.

   Model answer

   A business may have to accept lower quality materials or processes to reduce costs, or spend more to achieve higher quality.

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