Difference between revisions of "Opportunity cost"
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| − | In [[economics]] an opportunity cost is the value lost by choosing one alternative instead of another. It is the value of the sacrificed alternative in choosing something else. | + | In [[economics]], an opportunity cost is the value lost by choosing one alternative instead of another. It is the value of the sacrificed alternative in choosing something else. |
For example, doing a job that pays only $5 per hour when you could have taken a different job at $12 per hour has an opportunity cost of $7 per hour. Wasting three hours stuck in traffic has an opportunity cost of the money you could have been making for those three hours. | For example, doing a job that pays only $5 per hour when you could have taken a different job at $12 per hour has an opportunity cost of $7 per hour. Wasting three hours stuck in traffic has an opportunity cost of the money you could have been making for those three hours. | ||
Revision as of 04:30, March 24, 2008
In economics, an opportunity cost is the value lost by choosing one alternative instead of another. It is the value of the sacrificed alternative in choosing something else.
For example, doing a job that pays only $5 per hour when you could have taken a different job at $12 per hour has an opportunity cost of $7 per hour. Wasting three hours stuck in traffic has an opportunity cost of the money you could have been making for those three hours.
It is not necessarily associated with a monetary cost, and can be applied to any desicion of value. For example, a person could choose to eat pizza instead of a salad for lunch. Because they passed up the opportunity to eat a salad, the salad is an opportunity cost.
Opportunity cost is not recognized in calculating accounting cost and profits, but is recognized in calculating economic costs and profits.