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- Opportunity cost is the forgone benefit that would have been derived from an option other than the one that was chosen. To properly evaluate opportunity costs, the costs and benefits of every option available must be considered and weighed against the others.
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Apr 1, 2024 · Opportunity cost is the potential benefits that a business, an investor, or an individual consumer misses out on when choosing one alternative over another. It is a forward-looking measure that compares the expected returns of different options and weighs them against each other. Learn how to calculate opportunity cost, its role in capital structure, and its comparison with sunk cost and risk.
- Jason Fernando
- 2 min
Mar 29, 2021 · Opportunity cost is the value of what you lose when you choose from two or more alternatives. Learn how to calculate opportunity cost for investing and life decisions, and see examples of how it impacts your finances.
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. The word “cost” is commonly used in daily speech or in the news.
The New Oxford American Dictionary defines it as "the loss of potential gain from other alternatives when one alternative is chosen". As a representation of the relationship between scarcity and choice, [2] the objective of opportunity cost is to ensure efficient use of scarce resources. [3]
Learn how to use the production possibilities curve (PPC) to illustrate the tradeoffs and opportunity costs of producing two goods. See examples, graphs, equations, and common misconceptions about the PPC model.
- Helloooo, For discussion question number 1, is it correct if I say: with two product variables in th...Yes, but with a small additional needed element. For example, suppose you can produce either 20 paper airplanes in a day *or* 40 drawings of puppie...
- How can scarcity be represented in the graph of PPC?Answer by example - In the example of rabbits and berries, you have to allocate a scarce resource, namely time, in order to acquire other resources...
- Hi, I'm not quite sure that I understand the Opportunity Cost equation. It says X=(Y1-Y2)/(X1-X2) Bu...The number itself will be the same in either case. What changes is the sign of the equation (in this case negative). This should make sense because...
- What is the difference between opportunity cost and marginal cost? I heard him mentioned the term of...Marginal Cost is simply the opportunity cost of 1 more unit while opportunity cost is not restricted to just one unit
- How does the concept of opportunity cost help explain the trade-offs depicted by points inside, on, ...*Inside the PPC*: Inefficient, missing out on potential production of both goods. *On the PPC*: Efficient, maximizing production of both goods. *Ou...
- Why does it mean when opportunity cost is constant along the ppc? I know it’s because of the linear ...Hmmm… other things about a Constant Opportunity Cost of a Production Possibilities Frontier, PPF, or Curve PPC… So I believe you already understand...
Learn how to calculate opportunity cost, the trade-off of choosing one option over another, and how it relates to the production possibilities curve (PPC). Watch a video and see questions and comments from other learners.
- 6 min
- Sal Khan
Learn what opportunity cost is and how it is calculated in financial analysis. Find out how to apply opportunity cost to different types of decisions, such as choosing between projects, investments, or alternatives. See examples of opportunity cost in practice and contrast it with incremental and sunk costs.
