Opportunity cost is the value of the next best alternative that you give up when you make a choice. It is the cost of the foregone opportunity. In economics, opportunity cost is the most important concept to consider when making decisions.
For example, if you decide to go to college instead of working, you are giving up the opportunity to earn money. The opportunity cost of going to college is the amount of money you could have earned if you had worked instead.
Another example is when you are choosing between two different jobs. If you choose job A, you are giving up the opportunity to work at job B. The opportunity cost of choosing job A is the salary you could have earned at job B.
Opportunity cost is not always monetary. It can also be non-monetary, such as the time you spend doing something or the enjoyment you get from doing something. For example, if you decide to spend your weekend watching TV instead of going out with friends, you are giving up the opportunity to socialize. The opportunity cost of watching TV is the social interaction you could have had with your friends.
Opportunity cost is an important concept to consider when making decisions because it helps you to make the most of your resources. By considering the opportunity cost of each option, you can make sure that you are choosing the option that is best for you.
Here are some additional examples of opportunity cost:
- A company decides to invest in a new factory. The opportunity cost of this investment is the profits that the company could have made if it had invested in something else, such as research and development.
- A student decides to major in business instead of engineering. The opportunity cost of this decision is the salary that the student could have earned if they had majored in engineering.
- A person decides to stay at home with their children instead of going back to work. The opportunity cost of this decision is the income that the person could have earned if they had gone back to work.
Opportunity cost is a complex concept, but it is an important one to understand. By understanding opportunity cost, you can make better decisions about how to use your time, money, and other resources.