-1
$\begingroup$

Having learned that

Opportunity costs = the costs for avoided profits

are a well established and quite useful economic concept, I wonder how its counterpart is officially called and investigated:

Opportunity profits = the profit by avoided costs

Costs can be avoided in many different ways:

  • by paying unfair wages
  • by not providing good working conditions
  • by paying too low taxes
  • by exploiting the environment without paying for avoidance or reparation of damages and pollutions.

My question is for

  • the official name of "profit by avoiding costs"
  • some standard references on this topic
  • esp. in comparison with opportunity costs

A useful article on opportunity costs is this one:

Do Economists Recognize an Opportunity Cost When They See One?

One may as well ask:

Do Economists Recognize an Opportunity Profit When They See One?


Side question (the other way around): Would

  • paying higher wages than normal or necessary
  • providing better working conditions than normal or necessary
  • paying higher taxes than normal or necessary
  • paying more for avoidance and reparation of environmental damages and pollutions than normal or necessary

count as opportunity costs?

$\endgroup$
  • 2
    $\begingroup$ To the down-voter: A hint for down-voting would be very welcome. Is the question trivial (because everyone here should know the answer)? Or do you find the question opinion-based? (In which respect?) Or is it unclear or ill-posed? (In which respect?) $\endgroup$ – Hans-Peter Stricker Sep 5 at 13:59
  • 2
    $\begingroup$ "Opportunity costs = the costs for avoided profits" -- I have never seen anything like this definition of opportunity costs. It makes no sense to me and you may want to explain it. $\endgroup$ – Kenny LJ Sep 6 at 2:14
  • $\begingroup$ I'm not sure why people are down voting you, question is fine and up to standards. $\endgroup$ – Clinical_Coder Sep 6 at 13:57
4
$\begingroup$

Opportunity cost is simply the value not obtained of the highest value alternative. It can be positive or negative; meaning it doesn't really make sense to define the opposite as opportunity profit. There is only two ways to go about it rationally, either you are profiting from doing something, or you are not profiting by not doing something, which is defined as opportunity cost. Opportunity profit would just equate to opportunity cost because you are not doing whatever the opportunity is. (Also, I'm not the down voter).

$\endgroup$
  • $\begingroup$ That's a good way to see it. But nevertheless: negative costs = profit is a bit hard to digest - at least for the casual reader. So why not call the very same thing "cost" (if it is positive) and "profit" (if it is negative) - or the other way around? $\endgroup$ – Hans-Peter Stricker Sep 5 at 14:24
  • 2
    $\begingroup$ It's a bit hard to digest if you are new to the field, but once you start to go into a year or two of studying, 'negative costs' equaling 'profit' seems rather trivial. :) So it's named the way they are because the people who define it (write the textbooks & do the research) have been going at it for much longer than a year or two. $\endgroup$ – Clinical_Coder Sep 5 at 14:33
  • $\begingroup$ I'm an ecomonics novice - but don't need a year or two to accept this wording. But it will continue irritating me: being willing to pay opportunity costs (for whatever reasons) is something quite different than to avoid them and to make opportunity profits. That's my humble opinion. There's a huge and dichotomic difference between a public transport company that is willing to take smaller fees and a private mining company that does everything to avoid to pay for environmental damages. $\endgroup$ – Hans-Peter Stricker Sep 5 at 15:42
  • $\begingroup$ Let me rephrase it like this: "negative costs = profit" makes sense from the mathematical and microeconomic side, but it's not the right point of view from the sustainability and macroeconomic side. $\endgroup$ – Hans-Peter Stricker Sep 5 at 15:51
2
$\begingroup$

First off some terminology: opportunity cost are not necessarily avoided profit. Profit is a term that is used for firms, but opportunity cost does not just apply to firms. Moreover as @clinical coder points out the opportunity costs are not avoided profits but the value of the best alternative forgone. For certain firm decisions that may be forgone profit, but it may be something else entirely. For example in perfect competition the accounting profit of a firm in the long run equals the opportunity costs of the capital and labour contributed by the owners.

The examples you give of potentially avoided costs are all examples of either normative questions (when would you consider a wage to be "fair", what are "good" working conditions?) or externalities (pollution). In any case in perfect competition opportunities for extra profit through avoidable costs are likely to be cashed in upon pretty quickly.

Suppose a firm can make extra profit by paying a lower wage. As long as it can do so without chasing away employees and lowering its production it will do so in order to maximize its profits. If the first firm does so the rest will follow suit because otherwise the first firm can drive them out of the market.

Given that we expect avoidable costs to be cashed in upon pretty quickly, there is no specific term for it as far as I know. There is, however, a large literature on externalities and the economics of optimal regulation.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.