When demand is high and a resource is in short supply, the contribution margin per unit of the resource from its best possible use should exceed that forgone by putting it to the next best use.

Question

Quizplus · Accepted Answer

This statement describes the concept of opportunity cost, which means giving up the next best alternative. If demand is high and a resource is in short supply, using it for the most profitable opportunity will generate the highest contribution margin, which should exceed the forgone contribution margin from the next best alternative use.

When Demand Is High and a Resource Is in Short