Any entrepreneur needs to reach a state of business in which profits are maximized with minimal costs and expenses. This is natural since the business has a commercial orientation. Nevertheless, the decisions of an organizational leader may not always be justified. In turn, ineffective decisions, management problems, and choices can cause lost profits, called opportunity costs (Fernando, 2020). To put it another way, opportunity costs are generally all those decisions whose consequences are associated with risks. Given this, it is often the case that the entrepreneur leads production to a state of economic collapse or even crisis because of weak will, inability to predict, or random mistakes. On the contrary, comparative advantages are any strong points of a business with high competitive potential. For businesses, the presence of such advantages means the ability to stand out qualitatively from market competitors. Thus, when making critical strategic decisions, the entrepreneur should consider both risks expressed through opportunity costs and comparative advantages. Only the balance between the two sides will allow forming a vector of effective organizational development.
In business analysis, it is also imperative to use a model called the production possibilities frontier. As society seeks to maximize efficiency in limited resources, thoughtful strategic planning of production scale is an essential component of analytical management (Bloomenthal, 2020). Terminologically, the production possibilities frontier should be understood as the maximum output of specific goods given the resources available in a particular economy. The point on the curve indicates the efficiency of the use of current resources in the enterprise. At the same time, the balance may be shifted in the direction of one of the products that will be the main one for production. On the contrary, if the entrepreneur sees that the equilibrium point between two goods or services is outside the curve or in its area, it indicates high opportunity costs and, consequently, inefficient resource use. Consequently, the PPF is a valuable tool for making business decisions.
References
Bloomenthal, A. (2020). Production possibility frontier (PPF). Investopedia. Web.
Fernando, J. (2020). Opportunity cost. Investopedia. Web.