1. Topic of opportunity cost
In this section, we will discuss what are the opportunity cost and application of the opportunity cost in attending an MBA program and Malaysia pegging its dollar to the US dollar.
1.1 Concept of the opportunity cost
Choice involves sacrifice. The more food you choose to buy, the less money you will have to spend on other goods. The more food a nation produces the fewer resources will there be for producing other goods. In other words, the production or consumption of one thing involves the sacrifice if alternatives. This sacrifice of alternatives in the production (or consumption) of a good is known as its opportunity cost (Sloman J. 2003, p. 7). In theory, the opportunity cost of any activity is the sacrifice made to do it. It is the best thing that could have been done as an alternative.
A rational person will choose to do an activity if the gain from so doing exceeds any sacrifice involved.
In other words, whether as a producer, a consumer or a worker, a person will gain by expanding any activity whose marginal benefit (MB) exceed its marginal cost (MC) and by contracting any activity whose marginal cost exceed its marginal benefit. The term 'cost' in economists are referring to 'opportunity cost', in other words, the sacrifice of alternatives (Sloman J. 2003). Thus the economist's rule for rational economic behavior is that a person should expand or contract the level of any activity until its marginal benefit is equal to its marginal cost. At that point, the person will be acting efficiently in his or her own private interest. Only when MB=MC can no further gain be made. This is known as a situation of private efficiency. By analogy, social efficiency will be achieved where, for...