Opportunity Cost
This note will break down how to Caluclate Opportunity Cost and the various types of Opportunity Cost.
Author:Krish Beachoo
Edu Level: Unit1
Date: Mar 31 2026 - 10:40 AM
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Calculation
Formula
$$ Opportunity \space Cost = \cfrac{Change \space in \space Y}{Change \space in \space X} $$
Types of Opportunity Cost
There are three types:
(1) Constant Opportunity Cost / Constant Returns to Scale
As the country moves from point A to point B, 3 Units of Good Y is sacrificed to obtain 1 unit of Good X.
Additionally, as the country movies from point B to point C, 3 units of Good Y is sacrificed to obtain 1 unity of Good X.
Therefore, the diagram represents a contant Opportunity Cost.
(2) Decreasing Opportunity Cost / Increasing Return to Scale
For every consecutive increase in the production of good X from point A to point B to point C to point D, less and less of good Y is sacrificed.
This implies decreasing opportunity cost or increasing returns to scales.
(3) Increasing Opportunity Cost / Decreasing Return to Scale
This implies increasing opportunity cost of decreasing returns to scale.
This is because the country moves from point A to point B to point C to point D to E to F to G.
For every consecutive decrease in the production of good Y, less and less extra of good X is produced.
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