Reply To: "All costs are opportunity costs"


Yes, the price an entrepreneur pays for a unit of a factor of production is the same price being paid by all the other entrepreneurs who are using the factor in their lines of production. If consumers increase their demands for one line of an entrepreneur’s production, then he can attract more of a factor of production buy offering a higher price. The higher price will then become the new market-clearing price that must be paid by all entrepreneurs. (In other words, the market demand for the factor has increased.) Units of the factor will move into the higher demand line of production and out of the least valuable alternative lines of production, which are being produced by other entrepreneurs. As output declines in the alternative lines of production, prices of output there will rise and the higher costs can once again be covered by revenues.

In the division of labor, economizing decision must take account of economic calculation, which can be done only in monetary terms. Economizing in society cannot be done in subjective valuations alone. Fundamentally, in making choices people are always comparing the subjective value of alternatives. But, to do so successfully, they must take into account the technical, objective features of the different means they might use in attaining their ends. When acting in the division of labor, people must also make use of monetary prices, which are objective features of the world, in making economizing choices.