lecture recording on 10 December 2024 at 09.35.10 AM
Concept of Opportunity Cost
Opportunity Cost: The value of the next best alternative that is forgone when making a decision.
Explanation of Choices
Two options presented:
Take $1,000,000 right now.
Wait for a chance to receive $1,000,000 later.
Analyzing the Options
Immediate Gain:
Taking the money now provides immediate financial benefit and certainty.
This option eliminates the risk of the future option not materializing.
Future Possibility:
The other option implies waiting for a potentially better deal or opportunity (more money in the future).
However, this comes with uncertainty and risks associated with time value of money.
Considerations in Decision Making
Time Value of Money:
Money available today is worth more than the same amount in the future due to potential earning capacity.
Risk Assessment:
Evaluating the risk involved with waiting. Factors such as inflation, investment returns, and personal financial goals should be considered.
Personal Values:
Individual priorities can affect choice, including urgency for cash versus potential for higher reward.