Which of the following will lead to a change in the opportunity cost of buying a pen and a pencil

Just as with any other manufactured products, the economics of pencil manufacturing are driven by a number of factors.

These cost drivers include:

• cost of raw materials [wood, graphite, clay, brass or aluminum for ferrules, lacquer components, etc.]
• cost of parts or other finished components used to assemble the pencil
• cost of transportation and handling of various materials used and of the finished product to the factory
• cost of labor and benefits for the factory workers employees
• cost of energy
• cost of supplies used to maintain equipment
• cost of government regulations [taxes, duties, compliance to safety, labor or environmental rules]
• cost of capital [money used to buy equipment, to purchase and maintain inventories of raw materials, parts, supplies and finished product]
• cost of management

Pencil companies make a number of important decisions regarding these costs as part of their business. Some of the most important decisions include:

The pencil manufacturer strives to minimize the cost of producing the pencils at the desired quality level and quantity of production and to sell all these pencils for more than the cost in order to achieve a profit.

All of these decisions are made within the framework of the marketplace and the competition the pencil maker faces for business from the other producers. The level of competition can have a big impact on the profit in an industry or segment of the pencil market. Each company tries to focus on what competitive advantage it has versus other pencil makers and what it can do better than others. This is why different companies specialize only in certain markets or product ranges to try to set themselves apart.

These days, typical yellow writing pencils and children’s coloring pencils are generally considered to be a commodity. That is, one product from one producer is more or less considered by the customer to be as good as another, just like corn from one farm is more or less the same as corn from another farm. When this occurs the price often becomes the key purchase factor for the pencils. Then it is more difficult to make a profit without a strong brand name or other point of difference in terms of product feature or performance.

A key factor that effects the competition is the increasing level of international trade. As more markets have opened up to more producers from more countries around the world the pencil industry like many others has globalized. Many poorer countries such as China, Indonesia and India have dramatically increased pencils production and export because of a general cost advantage in materials, labor and reduced regulatory environments.

Opportunity cost is the value of something when a particular course of action is chosen. Simply put, the opportunity cost is what you must forgo in order to get something. The benefit or value that was given up can refer to decisions in your personal life, in a company, in the economy, in the environment, or on a governmental level.

• Someone gives up going to see a movie to study for a test in order to get a good grade. The opportunity cost is the cost of the movie and the enjoyment of seeing it.
• At the ice cream parlor, you have to choose between rocky road and strawberry. When you choose rocky road, the opportunity cost is the enjoyment of the strawberry.
• A player attends baseball training to be a better player instead of taking a vacation. The opportunity cost was the vacation.
• Jill decides to take the bus to work instead of driving. It takes her 60 minutes to get there on the bus and driving would have been 40, so her opportunity cost is 20 minutes.
• This semester you can only have one elective and you want both basket-weaving and choir. You choose basket weaving and the opportunity cost is the enjoyment and value you would have received from choir.
• The opportunity cost of taking a vacation instead of spending the money on a new car is not getting a new car.
• When the government spends $15 billion on interest for the national debt, the opportunity cost is the programs the money might have been spent on, like education or healthcare.
• If you decide not to go to work, the opportunity cost is the lost wages.
• For a farmer choosing to plant corn, the opportunity cost would be any other crop he may have planted, like wheat or sorghum.
• Tony buys a pizza and with that same amount of money he could have bought a drink and a hot dog. The opportunity cost is the drink and hot dog.
• You decide to spend $80 on some great shoes and do not pay your electric bill. The opportunity cost is having the electricity turned off, having to pay an activation fee and late charges. You might also have food in the fridge that gets ruined and that would add to the total cost.
• As a consultant, you get $75 an hour. Instead of working one night, you go to a concert that costs $25 and lasts two hours. The opportunity cost of the concert is $150 for two hours of work.
• David decides to quit working and got to school to get further training. The opportunity cost of this decision is the lost wages for a year.
• Caroline has $15,000 worth of stock she can sell now for $20,000. She wanted to wait two months because the stock was expected to increase. She decides to sell now. The opportunity cost would be determined in two months and would be the difference between the $20,000 and the price she would have gotten if she sold the stock then.
• Jorge really wants to eat at a new restaurant and can only afford it if he does not order a dessert. The opportunity cost is the dessert.
• A business owns its building. If the company moves, the building could be rented to someone else. The opportunity cost of staying there is the amount of rent the company would get.
• When Tobias graduated high school, he decided to go to college. The opportunity cost of going to college is the wages he gave up working full time for the number of years he was in college.
• Mario has a side business in addition to his regular job. If he decides to spend more time on his side business, the opportunity cost is the wages he lost from his regular job.
• Mr. Brown makes $400 an hour as an attorney and is considering paying someone $1000 to paint his house. If he decides to do it himself, it will take four hours. His opportunity cost for doing it himself is the lost wages for four hours, or $1600.

With these examples you can see what opportunity cost means and how it can apply in different situations.