When a business has idle capacity and has two options to choose from that will maximise capacity, the potential benefit that is surrendered by choosing only one option is known as the opportunity cost.

Question

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Opportunity cost refers to the potential benefits an individual, investor, or business misses out on when choosing one alternative over another. In this context, when a business has to choose between two options to maximize capacity and selects only one, the benefits it could have gained from the other option represent the opportunity cost.

When a Business Has Idle Capacity and Has Two Options