How To Increase Marginal Opportunity Cost ?
Marginal cost refers to the change in total cost that a business has to bear when it decides to increase the quantity produce by one unit. Basically, it refers to the cost that a business has to incur in order to produce one more unit. So, if a business is looking to increase marginal opportunity cost, it would have to reduce the production of one good in order to increase the production of another good as the resources for one good will have to be transferred for the other. |
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If a business is wondering how to increase marginal opportunity cost, it will have to weigh the pros and cons of this. There will have to be a trade off and hence, the business will have to sacrifice production of one good. Several factors come into play. However, as a business specializes in producing more of one product, the higher will be the marginal opportunity cost of producing that particular good. This is because more resources will be utilized for producing that particular good and hence, the resources will not be used very efficiently. Therefore, marginal opportunity cost should be increased in such a way that the resources are used efficiently to produce both types of goods. (See Reference 2)
In order to use resources more efficiently to produce both types of goods and increase marginal opportunity cost, a business has to answer many questions first. They should first look at the additional benefit they will reap from producing the second good. The benefits can range from more revenue by selling the good to more satisfied customers who use or consume the good. In additional, the business should also look at what will the additional opportunity cost be. This basically means that the business will have to do a trade off in order to produce the second good. Hence, knowing what sacrifice it will have to make will help the business decide whether to produce the second good or not. If the benefit from producing the second good outweighs or is greater compared to the opportunity cost, then it makes sense to go for the second good production and have an increase in the marginal opportunity cost. However, as the benefits for producing successive units of the second good decrease, the marginal opportunity cost will increase. This is something that the business should be prepared for as at some point the benefit of producing the good will be less than the marginal opportunity cost. Hence, a business should be looking to have equal benefit and marginal opportunity cost as this is an indication that the maximum has been reached. (See Reference 3)
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How To Increase Marginal Opportunity Cost
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