opportunity cost

Meaning

Opportunity cost represents the potential benefits an individual, investor, or business misses out on when choosing one alternative over another. It is a fundamental concept in economics used to evaluate the true cost of any decision. The tone is objective, analytical, and standard in financial planning and corporate strategy.

Examples

• The opportunity cost of keeping our capital in low-yield bonds is the forgone return on higher-growth tech stocks.

  The opportunity cost of keeping our capital in low-yield bonds is the forgone return on higher-growth tech stocks.

• Before we commit to the new factory, we must carefully calculate the opportunity cost of not investing in R&D.

  Before we commit to the new factory, we must carefully calculate the opportunity cost of not investing in R&D.

• Choosing to pursue an MBA has a high opportunity cost, including two years of lost salary and career progression.

  Choosing to pursue an MBA has a high opportunity cost, including two years of lost salary and career progression.

• A clear understanding of opportunity cost helps managers allocate limited resources more efficiently.

  A clear understanding of opportunity cost helps managers allocate limited resources more efficiently.

• While the project is profitable, its opportunity cost is too high given the other lucrative options available to us.

  While the project is profitable, its opportunity cost is too high given the other lucrative options available to us.

Common Mistakes

• ✗ The opportunity price of this investment is losing our market share.

  ✓ The opportunity cost of this investment is losing our market share.

  The standard economic term is always 'opportunity cost,' not 'opportunity price' or 'opportunity expense'.

• ✗ We must minimize our opportunity costs by choosing all options.

  ✓ We must evaluate our opportunity costs before choosing the best option.

  You cannot eliminate opportunity cost because choosing one path always means rejecting another. The goal is to evaluate it, not simply try to avoid it by attempting everything.

Related Expressions

Practice

• When deciding between two projects, you must consider the ___ of the rejected option.

  💡 The value of the next best alternative forgone.

  Show answer

  opportunity cost

• The ___ of holding cash during periods of high inflation is the loss of purchasing power.

  💡 The hidden cost of choosing one course of action over another.

  Show answer

  opportunity cost