Answer to Question #74321 in Microeconomics for Lihwa
An alternative value of any activity is measured as the cost of the best of the lost (not selected) alternatives. These are the victims of the other best choice available to someone who should choose from several mutually exclusive options. Alternative cost is a key concept in the economy, and is seen as an expression of "the main relationship between deficit and choice". The notion of alternative cost plays an important role in verifying whether rare (scarce) resources are used effectively. Thus, the alternative cost is not limited to monetary or financial costs: the real value of the lost product, lost time, satisfaction, or any other benefit that generates value should also be taken into account.
An alternative cost is always there where there is a choice. When we choose, we accept one option and, at the same time, we renounce the other. So, the alternative cost of the chosen option will be the cost of the option from which we declined.
For example, if an enterprise has its own premises, where it can either start production of some products or rent it, then the alternative cost when choosing production is the loss of profit from the lease. In economic theories, alternative costs in such cases are included in production costs.
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