Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Issue 4/2014 „ACADEMICA BRÂNCUŞI” PUBLISHER, ISSN 2344 – 3685/ISSN-L 1844 - 7007 HOW CAN OPPORTUNITY COST BE USED IN DETERMINING THE PROFIT? ȘTELIAC NELA LECTURER PH.D., "BABEȘ-BOLYAI" UNIVERSITY, CLUJ-NAPOCA, FACULTY OF ECONOMICS AND BUSINESS ADMINISTRATION e-mail: steliacn@yahoo.com, nela.steliac@econ.ubbcluj.ro Abstract Opportunity cost is an economic concept which takes on multiple forms of expression. One of these is the foregone profit as a result of the manufacturer’s option to produce goods by quality classes or of its choice of goods with certain values of gross margin and production lead times. This paper is focused on presenting some situations of avoiding opportunity costs within the meaning of foregone profit. To this end we contemplated two situations: i) one where manufacturers may opt, or not, to produce branded goods; ii) another where a restrictive factor (technical/physical and financial) may influence the manufacturer’s decision-making in what type of goods should be manufactured. Keywords: opportunity cost, forgone profit, production quality, production structure Jell Classification: D24, L11, L15 1. Introduction The Opportunity Cost (OC) of choices constitutes a highly complex economic concept, encountered in almost every area of activity. Along with market marginality and market efficiency, OC is one of the core concepts of economic theory, which should guide the decision-making process. The study of political economy will prove truly successful when these 3 concepts are considered in decision-making on a daily basis [1]. In connection to OC, J.D. Gwartney and R. L. Stroup state: if we fail to consider these costs we will end up using resources which are limited in quantity to produce economic goods which will not be valued as much as the goods which would have been otherwise produced with the same resources that were consumed in the first place [5]. Since its emergence in the 19 th century scholarly literature until nowadays, the concept of OC has undergone a series of changes, hardly negligible, in terms of its attributed meanings. However, regardless of the circumstances, P. Heyne points out that OC should be attributed to actions, not to things. He deems that OC are always expected marginal costs which should: guide the decision-making process; be the driver in taking action [6]. Nevertheless, in order to take action one has to be convinced of the possibility to cover all costs. The expenses of the past cannot be changed by present decisions, as such costs are already paid and irrelevant in decision-making. Over the past years, the concept of OC gained more and more ground in the literature, all the more so as it has been subject to different approaches. In defining OC, there is no consistency of thought. Some authors define OC as physical units of the economic goods which are discarded, whereas others introduce the notion of value of the economic goods that are discarded or, in other words, the value expression thereof. Also, in the national and international economic literature we can encounter another meaning of the word, that of foregone profit [2]-[7]-[16]. This understanding of OC, as well as its importance in decision-making, were dealt with in a series of publications [8]-[9]-[10]-[11]-[13]-[14], yet without detailing the steps required to determine the foregone profit. Hence, within this paper, our focus will be directed to those matters which were previously overlooked. As such, we will present below two cases of the OC associated to manufacturing (foregone profit perspective):  of production quality;  of production structure by products. 2. Quality opportunity cost Due to the fact that economic resources are limited, economic decisions need to be made considering that in order to obtain “something” one must give up “something else” [4]. The production of a good entails in fact a “price paid” which consists in foregoing another good [17]. Each result represents the alternative cost or the optimal cost. The latter expresses the quantity which has to be foregone from one good in favour of another, in order to obtain a unit. Consequently, any decision will trigger certain effects, materialised in OC. We consider that the occurrence of OC may be rendered as in the following diagram: 73