Opportunity cost refers to the value of the next best alternative use of a resource that must be given up to obtain or participate in something. It is measured in terms of potential gains from other options that are forgone, such as the value of time, money, or satisfaction that could have been attained instead. Opportunity cost is calculated as the ratio of what is sacrificed over what is gained from the choice that was made.
Opportunity cost refers to the value of the next best alternative use of a resource that must be given up to obtain or participate in something. It is measured in terms of potential gains from other options that are forgone, such as the value of time, money, or satisfaction that could have been attained instead. Opportunity cost is calculated as the ratio of what is sacrificed over what is gained from the choice that was made.
Opportunity cost refers to the value of the next best alternative use of a resource that must be given up to obtain or participate in something. It is measured in terms of potential gains from other options that are forgone, such as the value of time, money, or satisfaction that could have been attained instead. Opportunity cost is calculated as the ratio of what is sacrificed over what is gained from the choice that was made.
Opportunity cost refers to the value of the next best alternative use of a resource that must be given up to obtain or participate in something. It is measured in terms of potential gains from other options that are forgone, such as the value of time, money, or satisfaction that could have been attained instead. Opportunity cost is calculated as the ratio of what is sacrificed over what is gained from the choice that was made.
• Opportunity cost refers to what you have to give up to
buy what you want in terms of other goods or services. When economists use the word “cost,” we usually mean opportunity cost. • When economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest- valued alternative use of that resource. EXAMPLE: • You spend time and money going to a movie, you cannot spend that time at home reading a book, and you can’t spend the money on something else. If your next-best alternative to seeing the movie is reading the book, then the opportunity cost of seeing the movie is the money spent plus the pleasure you forgo by not reading the book. • A student spends three hours and $20 at the movies the night before an exam. The opportunity cost is time spent studying and that money to spend on something else. • A farmer chooses to plant wheat; the opportunity cost is planting a different crop, or an alternate use of the resources (land and farm equipment). • A commuter takes the train to work instead of driving. It takes 70 minutes on the train, while driving takes 40 minutes. The opportunity cost is an hour spent elsewhere each day. THE FORMULA Opportunity cost is the value of the next best alternative or option. This value may or may not be measured in money. Value can also be measured by other means like time or satisfaction. One formula to calculate opportunity costs could be the ratio of what you are sacrificing to what you are gaining. If we think about opportunity costs like this, then the formula is very straight forward. What you sacrifice / What you gain = opportunity costs
