<p>Opportunity cost is the price of doing something in terms of something else. For example, cost of taking trip to Prague may be giving up new bike. In this broad sense marginal cost of producing one unit of q would be also it’s opportunity cost because you could use the same resources to produce something else. Opportunity cost of producing 1 widget at 5€ might be giving up possibility to produce 2 pins at 2,5€ each.</p>

<p>What the quote says is not that only time has opportunity cost but that you should not forget to add the opportunity cost of the persons time to the costs.</p>

<p>Also opportunity cost is not producer surplus. You don’t need to give up producer surplus to produce the particular good or service you are producing. You could include that in opportunity costs if you would be looking at it from a point of view of person deciding to leave the market to go to do some other business or retiring </p>

CC BY-SA 4.0
2019-11-24T10:45:58.487Z
Thanks, so is it correct to say the marginal utility is equal to the opportunity cost? So would the opportunity cost be points on the supply curve?
Christopher U
CC BY-SA 4.0
2019-11-24T10:57:36.540Z
@ChristopherUren opportunity cost is definitely not a point at a supply curve but opportunity cost for a marginal product would be the vertical difference between a point on supply curve and x axis. Total opportunity cost for all production would be the area under the supply bounded by eq price. Marginal utility does not generally have to be equal to opportunity cost there might be some special cases where it’s equal but in most cases your best option should give you at least slightly higher marginal benefit than the opportunity cost of the action
1muflon1
CC BY-SA 4.0
2019-11-24T11:12:59.373Z
but aren't firms trying to make a profit? If the opportunity cost is the vertical distance to the price they are willing to sell at, woulsnt the profit be zero?
Christopher U
CC BY-SA 4.0
2019-11-24T11:19:50.243Z
@ChristopherUren well in perfectly competitive industry you representative firm gets zero economic profit because all profits are competed away. However, don’t confuse zero economic profit with no accounting profit. Again opportunity cost includes also cost or opportunity of doing something else. If you are running ice cream stand but you can do IT job which pays 100k per year then you have to get at least 100k accounting profit to cover the extra opportunity cost of not being in IT but your economic profit will be 0
1muflon1
CC BY-SA 4.0
2019-11-24T11:20:11.020Z
And how are opportunity cost and marginal cost related?
Christopher U
CC BY-SA 4.0
2019-11-24T11:22:19.023Z
@ChristopherUren marginal cost is the cost of producing last unit you produce. If you express the marginal cost not in $ or € but in terms of forgone opportunity for example cost of last widget is 2 pins it becomes opportunity cost
1muflon1
CC BY-SA 4.0
2019-11-24T11:27:33.757Z
Sorry, What is meant by cost of producing last unit? I thought marginal cost is cost of producing extra unit?
Christopher U
CC BY-SA 4.0
2019-11-24T11:28:35.757Z
@ChristopherUren well yes. If your opportunity cost of supplying one widget is x then you won’t be supplying the good for more than the x. You would rather go to that other activity. Like that ice cream producer going to do IT in the example before
1muflon1
CC BY-SA 4.0
2019-11-24T11:43:33.900Z
Sorry, so is opportunity cost the price that producers are willing to supply at? And what is meant by the above example, are you selling the good and the widget is something else you could sell?
Christopher U
CC BY-SA 4.0
2019-11-24T12:00:48.070Z
@ChristopherUren opportunity cost for a unit of product q is equal to the *minimum* price they are willing to supply it. Of course, if you offer me more I get positive economic profit and I am happy - although that won’t happen for representative firm in perfect competition because why would you pay more than the minimum price. The example is that if you have a factory for industrial parts you can use the same factory for both widgets and pins if we assume the costs of producing widget is twice the cost of producing pin then opportunity cost of choosing producing 1 widget is 2 pins
1muflon1
CC BY-SA 4.0
2019-11-24T10:20:49.770Z
2019-11-24T10:31:55.867Z
2019-11-24T10:31:55.867Z
1muflon1
<p>I understand that the marginal cost is the cost of producing one additional unit of a good or service.</p>

<p>Is it correct to say that the opportunity cost is part of the marginal cost (I'm trying to figure out what is meant by this picture below)? </p>

<p><a href="https://i.sstatic.net/8GlJJ.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/8GlJJ.png" alt="PS"></a></p>

<p>And secondly, is this statement correct "whatever a producer receive aboves its opportunity cost of providing the good/service is its producer surplus?" I read this online. Isn't it suggesting that the opportunity cost is the marginal benefit (because price received minus the points on the supply curve is producer surplus)?</p>

<microeconomics>
Difference between Opportunity cost and marginal cost
Christopher U
# Difference between Opportunity cost and marginal cost

(Asked by: username_0 on 2019-11-24)

I understand that the marginal cost is the cost of producing one additional unit of a good or service.

Is it correct to say that the opportunity cost is part of the marginal cost (I'm trying to figure out what is meant by this picture below)?

[![PS](https://i.sstatic.net/8GlJJ.png)](https://i.sstatic.net/8GlJJ.png)

And secondly, is this statement correct "whatever a producer receive aboves its opportunity cost of providing the good/service is its producer surplus?" I read this online. Isn't it suggesting that the opportunity cost is the marginal benefit (because price received minus the points on the supply curve is producer surplus)?

**Tags:** microeconomics

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## 1 answers

### Answer by username_1 on 2019-11-24. Score: 5 | Accepted answer

Opportunity cost is the price of doing something in terms of something else. For example, cost of taking trip to Prague may be giving up new bike. In this broad sense marginal cost of producing one unit of q would be also it’s opportunity cost because you could use the same resources to produce something else. Opportunity cost of producing 1 widget at 5€ might be giving up possibility to produce 2 pins at 2,5€ each.

What the quote says is not that only time has opportunity cost but that you should not forget to add the opportunity cost of the persons time to the costs.

Also opportunity cost is not producer surplus. You don’t need to give up producer surplus to produce the particular good or service you are producing. You could include that in opportunity costs if you would be looking at it from a point of view of person deciding to leave the market to go to do some other business or retiring

> **Comments:**
> **username_0**: Thanks, so is it correct to say the marginal utility is equal to the opportunity cost? So would the opportunity cost be points on the supply curve?  
> **username_1**: @ChristopherUren opportunity cost is definitely not a point at a supply curve but opportunity cost for a marginal product would be the vertical difference between a point on supply curve and x axis. Total opportunity cost for all production would be the area under the supply bounded by eq price. Marginal utility does not generally have to be equal to opportunity cost there might be some special cases where it’s equal but in most cases your best option should give you at least slightly higher marginal benefit than the opportunity cost of the action  
> **username_0**: but aren't firms trying to make a profit? If the opportunity cost is the vertical distance to the price they are willing to sell at, woulsnt the profit be zero?  
> **username_1**: @ChristopherUren well in perfectly competitive industry you representative firm gets zero economic profit because all profits are competed away. However, don’t confuse zero economic profit with no accounting profit. Again opportunity cost includes also cost or opportunity of doing something else. If you are running ice cream stand but you can do IT job which pays 100k per year then you have to get at least 100k accounting profit to cover the extra opportunity cost of not being in IT but your economic profit will be 0  
> **username_0**: And how are opportunity cost and marginal cost related?  
> **username_1**: @ChristopherUren marginal cost is the cost of producing last unit you produce. If you express the marginal cost not in $ or € but in terms of forgone opportunity for example cost of last widget is 2 pins it becomes opportunity cost  
> **username_0**: Sorry, What is meant by cost of producing last unit? I thought marginal cost is cost of producing extra unit?  
> **username_1**: @ChristopherUren well yes. If your opportunity cost of supplying one widget is x then you won’t be supplying the good for more than the x. You would rather go to that other activity. Like that ice cream producer going to do IT in the example before  
> **username_0**: Sorry, so is opportunity cost the price that producers are willing to supply at? And what is meant by the above example, are you selling the good and the widget is something else you could sell?  
> **username_1**: @ChristopherUren opportunity cost for a unit of product q is equal to the *minimum* price they are willing to supply it. Of course, if you offer me more I get positive economic profit and I am happy - although that won’t happen for representative firm in perfect competition because why would you pay more than the minimum price. The example is that if you have a factory for industrial parts you can use the same factory for both widgets and pins if we assume the costs of producing widget is twice the cost of producing pin then opportunity cost of choosing producing 1 widget is 2 pins  

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