Opportunity Cost
It is the estimated value of the best alternative or the best option that one misses out as a consequence of picking one particular option.
Example: Spending a limited resource, like Money, on healthcare, comes with the 'opportunity cost' of being unable to spend that amount on education.
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Calculating Opportunity Cost
The way to calculate the opportunity cost is to subtract the value of the option from the value of the alternative that is foregone.
Opportunity Cost = Return on the best foregone alternative - Return on the chosen option.
Opportunity Cost
An opportunity cost is the potential ‘alternative’ or benefit that is forfeited when one chooses a particular option.
The other, foregone option, if it is lower than other companies, is the key factor in this trade-off.
Opportunity Cost Calculations
Many people and organizations fail to take into account the various opportunity costs.
- We need to actively question ourselves about the alternatives that may be missed out by deciding on a particular option.
- The often neglected cost of waiting too long is also a ...
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