Difference between revisions of "Opportunity cost"
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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. | 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. | |
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| + | Opportunity cost is not recognized in calculating accounting cost and profits, but is recognized in calculating economic costs and profits. | ||
Revision as of 22:42, March 17, 2007
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.
Opportunity cost is not recognized in calculating accounting cost and profits, but is recognized in calculating economic costs and profits.