Formula and Calculation of 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.

When mulling over multiple choices, the quality of any option cannot be assessed in isolation from its alternatives. The price you pay (or the sacrifice you make, or the benefits you give up) for doing what you’ve chosen to do instead of doing something else is the opportunity cost.

Opportunity cost in non-financial situations is more difficult to quantify. The loss or gain with choosing an option while foregoing another can be subjective and not readily comparable.

Example: While deciding on which job offer to take, we may consider job satisfaction, brand name, com...