Opportunity Costs & Price Elasticity and Decision-Making
Question#1: Opportunity Costs
Are Opportunity Costs real, and do they have an effect on decision-making? Illustrate with the help of an example how you might consider opportunity costs in a business decision.
Below are links to the articles. Read and reflect upon opportunity costs. You may wish to do some research of your own. Make sure you support your statements.
Opportunity Costs Consideration
Opportunity Costs Consideration.pdf
Opportunity Costs Reexamination
Opportunity Costs Rexamination.pdf
Opportunity Costs Complexities
Complexities in Opportunity Costs.pdf
Question#2: How does Price Elasticity effect organizational decision-making? Demonstrate using industry/company examples.
Below are links to the articles. Read and reflect upon Price Elasticity. You may wish to do some research of your own. Make sure you support your statements.
A Decision-Making Structure for Price Decisions
A_Decision-making_Structure_fo.pdf
Price Elasticity and Demand
Price Elasticity and Demand.pdf
New Empirical Generalizations on the Determinants of Price Elasticity
New Empirical Generalizations on the Determinants of Price Elasticity.pdf
Opportunity Costs & Price Elasticity and Decision-Making
Author’s Name
Institution of Affiliation
Course Name
Instructor’s Name
Date
Opportunity Costs & Price Elasticity and Decision-Making
Question 1
Investors tend to overlook opportunity costs. In essence, it is described as the hidden cost linked with failure to take an alternative course of action. For instance, if an organization follows a certain industry policy without initially seeing the benefits of substitute policies obtainable to them, they may fail to acknowledge their opportunity costs. Opportunity cost does not occur directly as it is an unclear and subjective model that can be calculated in various ways (Parkin, 2016). Economically, opportunity costs are still real. Studies purport that opportunity cost is a real cost, which means it is necessary to work with real terms (physical quantity) (O’Donnell, 2016). However, since it is a relatively abstract concept, several firms, investors, and executives do not account for it in their daily decision-making.
Opportunity costs have an integral effect on the process of decision-making. Whenever opportunity costs are valued, integrating them into an individual's decision decreases the probability of buying, but when invaluable, integrating them into individuals’ decisions surges the possibility of purchase (Spiller, 2011). In business, if a person wants to buy new equipment, their opportunity cost is the money spent elsewhere. Besides, consumers should consider opportunity costs if they tend to design for the forthcoming use of their money (Spiller, 2011). Organizations must consider implicit and explicit costs when making rational decisions in business. For example, before making decisions such as starting a business, a person begins by carefully researching the pros and cons of their decisions. However, daily choices are not made with a comprehensive understanding of the possible opportunity cost. Usually, when people are cautious about purchasing something, most individuals check their savings balance before even spending a penny. However, they tend to fail to think about things they must give up when making such spending decisions.
Question 2
Price elasticity calculates the reactiveness of a commodity's amount demanded or supplied to a variation in its price. It ha...