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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)?

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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)?

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    $\begingroup$ As an aside, there is the Marginal opportunity cost which is an economic term that analyzes the effect of producing additional units of a product on the costs of a business, as well as the opportunities the companies give up to produce more of a product. $\endgroup$
    – user24858
    Nov 24, 2019 at 20:17

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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

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  • $\begingroup$ 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? $\endgroup$
    – Christopher U
    Nov 24, 2019 at 10:45
  • $\begingroup$ @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 $\endgroup$
    – 1muflon1 ♦
    Nov 24, 2019 at 10:57
  • $\begingroup$ 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? $\endgroup$
    – Christopher U
    Nov 24, 2019 at 11:12
  • $\begingroup$ @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 $\endgroup$
    – 1muflon1 ♦
    Nov 24, 2019 at 11:19
  • $\begingroup$ And how are opportunity cost and marginal cost related? $\endgroup$
    – Christopher U
    Nov 24, 2019 at 11:20

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