What is meant by: Total Cost includes opportunity cost?

Total cost in economics refers to the sum of all the costs associated with producing a certain amount of goods or services. This includes both explicit costs, which are direct out-of-pocket expenses, and implicit costs, which represent the opportunity cost of using resources in one way instead of another.

Opportunity cost is a key concept in economics that refers to the potential benefit an individual, investor, or business misses out on when choosing one alternative over another. In other words, it's the loss of potential gain from other options when one option is chosen.

So, when we say "Total Cost includes opportunity cost", it means that the total cost takes into account not only the actual expenses incurred in producing a good or service (like raw materials, labor, etc.), but also the cost associated with the foregone opportunity that was given up in order to produce that good or service.

Here's a step-by-step breakdown:

1. Identify the explicit costs: These are the direct costs of producing a good or service, such as wages, rent, and materials.

2. Identify the implicit costs: These are the indirect costs, or opportunity costs, of using resources in one way instead of another. For example, the opportunity cost of using your time to study instead of working could be the wages you could have earned.

3. Add the explicit and implicit costs together: The sum of these costs gives you the total cost, which includes both the actual out-of-pocket expenses and the opportunity cost.

In conclusion, "Total Cost includes opportunity cost" means that when calculating the total cost of production, both direct and indirect (opportunity) costs are considered.