Opportunity cost means the value of the best alternative you give up when you choose one option instead of another. In other words, it is the benefit you would have received from the next-best choice that you did not take.

Core idea

  • When you make a choice, you cannot use the same time, money, or resources on something else.
  • The opportunity cost is the lost potential gain from that next-best “something else.”

Simple example

  • If you spend an evening studying, your opportunity cost might be the fun or relaxation you would have enjoyed going out with friends.
  • In business, if a factory uses its capacity to make Product A, the opportunity cost is the profit it could have earned from Product B with those same resources.

Why it matters

  • Opportunity cost helps explain that “there is no free lunch”: every choice involves giving up another possible benefit.
  • It encourages smarter decisions by making you consider both explicit costs (actual money spent) and implicit costs (time, enjoyment, alternative uses of resources).

Information gathered from public forums or data available on the internet and portrayed here.