Question: Explain the importance of the concept of opportunity cost in Economics. How does it relate to monetary cost? I plan to define opportunity cost. Define other costs (Fixed Cost...). Write about the importance of opportunity cost. (Investment, Profit, Individual Choice, International Trade) However, i don't know what to write about the difference between monetary cost and opportunity cost. Hope you can help. Thank You.
I think opportunity cost relates to the option to invest in other projects. You could base the minimum return on the base rate or risk free rate. Then you could put options against that to see whether you get a better return from the offered investment. In terms of monetary cost I think it is weighing in the cost of inflation and the aspect of international trade on the currency value you hold. I don't see how fixed cost would be relevant unless you are assessing the actual running of the business in which cas you will have to look at variable costs and then the risks involved in such a project. The time value of money will be important in your essay it will explain how the value of money depreciates over time due to inflation and how receiving money early on is better than later unless there is a high return from such delay. Compounding interest is something you need to address it is the opposite of inflation, however the low interest rate will cut the value of the return plus current high inflation would suggest that it is not a good idea to hold onto currency investments at the moment. Precious metals are the best hedge against inflation in my opinion you might want address that. Also portfolio diversification and the elimination of risk might be sub topic you could bring into the argument.
Whenever you undertake one action/opportunity that means that you forgo another one, you have to consider what you are missing. The other action/opportunity is your opportunity cost. Often economists examplify opportunity cost by quantifying it (assigning number values). Monetary cost is just the monetary value (assigned) of the other project. I'm not sure that there is much to uncover in the definitions to do a whole essay. GL anyway.
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