Opportunity Cost

Opportunity cost represents the value of the next most attractive option that one should sacrifice to obtain a specific object. It operates upon an understanding that resources come at a cost and must be managed thoughtfully. What if you decide to devote an evening to studies instead of going out to have fun with friends? The opportunity cost will be the fun and companionship you could have had. It's an economics foundation principle utilized in making personal and organizational calculations. By understanding the consequences of the opportunity cost, individuals and companies can decide more wisely, exploring each decision's advantages and disadvantages that lead to a better solution.

Example

Consider that you're a student who has little time and money. Would you rather go to a concert or stay home and study for an upcoming exam? If you decide to attend the concert, the highest cost would be the alternative education you might have gotten by studying. However, if you are the alternative, the opportunity cost would be the delight and learning of the concert. By understanding this idea, it helps you in putting your best foot forward. To decide what is best for you, you must gauge the benefits and costs of these alternatives that work with and without your values. Effectively, opportunity cost reinforces that any decision entails trading off on other equally attractive choices while providing a basis for making the right commitments.