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Jonathan Mendez is debating whether to attend a concert with friends tonight or study for his economics exam at a cafe. His opportunity cost calculations for these decisions do not take into account the cost of his economics course tuition, which amounts to a financial cost.
What are opportunity costs?
The time and money spent learning that could have been put to other uses make up the opportunity cost. The opportunity cost of not growing wheat or using the resources in another way exists when a farmer decides to do so (land and farm equipment).
Opportunity cost is frequently described as the backup plan. Sometimes referred to as the alternative cost, this is the loss of gain that would have been realized if a different option had been selected. Another way to express it is the loss of benefit brought on by a change in choice.
Define financial cost?
The costs, interest, and other fees associated with borrowing money to construct or buy assets are referred to as financing costs (FC), often known as the cost of finances (COF). This can include how much it costs to finance a home mortgage, a bank-financed vehicle loan, or a school loan.
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