... is not reason to support subsidies.
Even if the cost of producing a barrel of oil is RM0.01 (1cent), selling it at RM1 when market price is RM5 means that you're suffering RM3.99 in losses for every unit you sell for RM1. Opportunity cost.
How so? Imagine selling that unit of oil for RM5 (market price) and then burning the RM3.99 to report an RM1 per unit revenue.
If Petronas' oil does indeed sell for more (since Petronas' oil is of a higher grade and fetches higher prices), then subsidizing it will incur an even greater loss. Opportunity cost.
If I sell you a RM 1 million piece of art (market price) for RM 10 just because I bought it from the artist for RM 1, opportunity cost dictates that I'm not gaining RM 9. My assets just went down by near RM 1 million from owning the piece to RM 10 after selling the piece.
The opportunity cost of a person attending university illustrates this as well. The cost isn't just the tuition fees (cost of drilling and processing oil) but involves potential incomes lost due to time spent studying.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment