1. What is Opportunity Cost?

Opportunity cost represents the potential benefits an individual, investor, or business misses out on when choosing one alternative over another. It's a fundamental concept in economics that helps in making better decisions by considering what you give up when making a choice.

2. How Does the Calculator Work?

The calculator uses the opportunity cost formula:

Where:

• Forgone Benefit — The value of the next best alternative you didn't choose
• Chosen Benefit — The value of the option you selected

Explanation: The formula calculates the difference between what you could have gained and what you actually gained from your decision.

3. Importance of Opportunity Cost

Details: Understanding opportunity cost helps individuals and businesses make more informed decisions by quantifying what's sacrificed when making a choice. It's crucial for resource allocation, investment decisions, and evaluating trade-offs in everyday life.

4. Using the Calculator

Tips: Enter the monetary value of both the option you chose and the next best alternative you didn't choose. The calculator will show you the opportunity cost of your decision.

5. Frequently Asked Questions (FAQ)

Q1: Can opportunity cost be negative?
A: Yes, a negative opportunity cost means the chosen option was actually better than the alternative you gave up.

Q2: Is opportunity cost always monetary?
A: No, opportunity cost can include time, satisfaction, or other non-monetary factors, though this calculator focuses on financial aspects.

Q3: How is this different from accounting cost?
A: Accounting cost only considers actual expenses, while opportunity cost considers potential benefits you miss out on.

Q4: Why is this important for businesses?
A: Businesses use opportunity cost to evaluate investment decisions, production choices, and resource allocation to maximize profits.

Q5: Can opportunity cost be zero?
A: Yes, if the chosen option and the alternative have equal value, the opportunity cost would be zero.