As a manufacturer of hats, you are producing 10 hats using 16 capital and 7 labour. The price of capital is $ 10 and the price of labour is $20. The price of labour decreases to $10. What is the new cost of producing 10 units if (a) you do not have time to adjust your capital and (b) if you have sufficient time to make adjust your capital. What will be the cost of hats if you maintain your budget and produce more hats? Capital 30 28 26 24 22 20 18 16 14 12 10 10 M 16 10 18 20 30 40 Labour

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Opportunity Cost Analysis

Opportunity cost refers to the loss of potential benefits when choosing one alternative over another. It is the tradeoff a person makes, or the potential gains they miss out on, because of their choice. To analyze opportunity cost, we must consider the benefits and tradeoffs of each available option.