Opportunity cost

In microeconomic theory, the opportunity cost, or alternative cost, of making a particular choice is the value of the most valuable choice out of those that were not taken. When an option is chosen from alternatives, the opportunity cost is the 'cost' incurred by not enjoying the benefit associated with the best alternative choice. The New Oxford American Dictionary defines it as 'the loss of potential gain from other alternatives when one alternative is chosen.' In microeconomic theory, the opportunity cost, or alternative cost, of making a particular choice is the value of the most valuable choice out of those that were not taken. When an option is chosen from alternatives, the opportunity cost is the 'cost' incurred by not enjoying the benefit associated with the best alternative choice. The New Oxford American Dictionary defines it as 'the loss of potential gain from other alternatives when one alternative is chosen.' Opportunity cost is a key concept in economics, and has been described as expressing 'the basic relationship between scarcity and choice'. The notion of opportunity cost plays a crucial part in attempts to ensure that scarce resources are used efficiently. Opportunity costs are not restricted to monetary or financial costs: the real cost of output forgone, lost time, pleasure or any other benefit that provides utility should also be considered an opportunity cost.Opportunity cost of a product or service means the revenue that could be earned by its alternative use. In other words opportunity cost is the cost of the next best alternative of a product or service. The meaning of the concept of opportunity cost can be explained with the help of following examples: