When economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you cannot spend the money on something else. In microeconomic theory, the opportunity cost, also known as alternative cost, is the value (not a benefit) of the choice in terms of the best alternative while making a decision. Opportunity cost is a key concept in economics, and has been described as expressing "the basic relationship between scarcity and choice."‎History · ‎Opportunity costs in · ‎Evaluation · ‎Example. The term "opportunity cost" comes up in finance and economics when discussing the choice of one investment, either financial or capital, over.


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It is the highest value option forgone.

Opportunity cost

The opportunity cost of a city's decision to build the hospital on its vacant land is the loss of the land for a sporting center, or the inability to use the land for a parking lot, or the money the city could have made by selling the land.

Use for any one of those purposes precludes all the others. Opportunity cost in economics is currently impossible.

Examples of opportunity cost The cost of war. Spending on new roads. If you have 12 hours at your disposal during the day, you could spend these hours in work or leisure.

Cost functions are derived from production functions. The production function expresses the functional relationship opportunity cost in economics input and output.

In simple terms, the production function states that output depends upon various quantities of inputs.

Economics notes: Opportunity cost

If prices of inputs are known, we can calculate the costs of production. The cost of production of a commodity is opportunity cost in economics aggregate of prices paid for the factors of production used in producing that commodity.

Opportunity Cost Modern economists have rejected the labor and sacrifices nexus to represent real cost.

Rather, in its place they have substituted opportunity or alternative cost. The concept of opportunity cost occupies an important place in economic theory.

Opportunity cost

The concept was first developed by an Austrian economist, Wieser. The concept is based on the fundamental fact that factors of production are scarce and versatile.


Our wants are unlimited. The means to satisfy these wants are limited, but they are capable of alternative uses. While it may sound like overkill to think about opportunity costs every time you want to buy a candy bar or go on vacation, it's an important tool to use to make the best use of your money.

The difference between a sunk cost and opportunity cost in economics opportunity cost is the difference between money already spent and potential returns not earned opportunity cost in economics an investment because one invested capital elsewhere.

This is the amount of money paid out to make an investment and getting that money back requires liquidating stock at or above the purchase price. Opportunity cost describes opportunity cost in economics returns that one could have earned if he or she invested the money in another instrument.

Investors must take both concepts into account when deciding whether to hold or sell current investments. An investor has already sunk opportunity cost in economics into investments, but if another investment promises greater returns, the opportunity cost of holding the underperforming asset may rise to where the rational investment option is to sell and invest in a more promising investment elsewhere.

  • Opportunity cost - Wikipedia
  • Opportunity Cost Definition | Economics Help
  • Introduction to Cost Function

In economics, risk describes the possibility that an investment's actual and projected returns are different and that the investor opportunity cost in economics some or all of the principle. Ideally an intervention should be compared with all relevant interventions, including doing nothing.

Meaning of Opportunity Cost and Its Economic Significance | Owlcation

Sometimes, however, the opportunity cost in economics nothing option may be unethical, such as when a new treatment is being compared with one that has been shown to be beneficial.

Partly for this reason, many studies compare particular interventions with existing practice 1 which may or may not be opportunity cost in economics defined. Failure to select an appropriate comparator may make the intervention appear more cost effective than it should, leading to wrong estimates of the opportunity cost.