The opportunity cost of any good is the next best alternative good that is sacrificed. That is to say, the opportunity cost of producing a good is not any other alternative good that could be produced with the same factors; it is only the most valuable other good which the same factors could produce. The factors which are used for the manufacture of a car may also be used for the production of an equipment for the army. Therefore, the opportunity cost of the production of a car is the output of the army equipment foregone or sacrificed, which could have been produced with the same amount of factors that have gone into the making of a car.
Real cost connotes to those payments which are made to factors of production to compensate for the toil and efforts in rendering their services. Real cost is computed in terms of the pain and the discomfort involved for labour when it is engaged in production, and also the abstinence and sacrifice involoved in saving and capital accumulation.
According to Marshall, “The exertions of all the different kinds of labour that are directly or indirectly involved in making it, together with the abstinences sacrifices together will be called the real costs of production of the commodity.”
