The amount of profit that a company forgoes when it decides to drop a particular product line in favor of another one

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Business

Ernest Khan

27 December, 12:04

The amount of profit that a company forgoes when it decides to drop a particular product line in favor of another one

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Elise Mendoza · Answer 1

The amount of profit that a company forgoes when it decides to drop a particular product line in favor of another one, this describes the opportunity cost.

Opportunity cost is defined as the benefit you could receive, but you chose another action. For example if you have $1000 and you have two choices, either to buy shares from x company or invest in another y company. If x company will give you 10% and y will give you 5% and you chose the x company for your benefit but however x company returns only 2% when you could have had 5% from the y company. So your opportunity cost is 5% - 2% = 3%