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Opportunity cost (view source)

Revision as of 22:42, March 17, 2007

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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.

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It is not recognized in calculating accounting cost or profits, but is recognized in calculating economic costs and profits.

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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.

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