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Sir i have a small confusion
For example there are two new project A and B …i have to decide which project to undertake.
And i can choose only one of the two projects( due to scarce resource). If the MCQ type question asks what is the relevant cost/benefit of project A…will i include in it the opportunity cost of project B??In the given scenario, if you are asked about the relevant cost/benefit of project A, you would not include the opportunity cost of project B.
The relevant cost/benefit analysis focuses on the incremental costs and benefits of each individual project.
The opportunity cost of project B would only be relevant if you were comparing the two projects and deciding between them.
However, when analysing the relevant cost/benefit of project A in isolation, you would not consider the opportunity cost of project B.But sir opportunity cost is the best alternative foregone due to scarce resource…..
Here the project b will be foregone due to scarcity …..then why not opportunity cost of accepting project asir let me clarify my doubt…
for example there are two NEW PROJECTS(one of them is one off contract)…..and resource are scarce so i can take only one of the two….
now for one off contract the question asks me to decide the minimum price…..
for the minimum price will i have to include opportunity cost of the lost contribution of the other project ?Yes, when deciding on the minimum price for the one-off contract, you would need to include the opportunity cost of the lost contribution from the other project.
The opportunity cost refers to the income that is foregone by choosing one project over another due to limited resources. In this case, since resources are scarce and you can only take on one of the two projects, the relevant cost for the one-off contract would include the lost contribution from the other project. By considering the opportunity cost, you can make a more informed decision about the minimum price that would make the one-off contract financially viable.
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