What is the opportunity cost of a decision. There is no specifically defined or agreed on mathematical formula to calculate opportunity cost but there are ways to think about opportunity costs in a mathematical way.
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How to calculate opportunity cost econ. Opportunity cost is one of the key concepts in the study of economics economics cfi s economics articles are designed as self study guides to learn economics at your own pace. Opportunity cost is the value of the next best alternative or option. To demonstrate the concept behind an opportunity cost we ll use the.
In short opportunity cost can be described as the cost of something you didn t choose. Opportunity cost is a theory in microeconomics that measures the value of two alternative choices to show what will be lost in the pursuit of one of these options. This is easy to see while looking at the graph but opportunity cost can also be calculated simply by dividing the cost of what is given up by what is gained.
The benefit or value that was given up can refer to decisions in your personal life in an organization in the country or the economy or in the environment or on the governmental level. Opportunity cost is the value of something when a certain course of action is chosen. If microeconomics isn t you re thing try this course in micro and macro economics for a refresher.
For example the opportunity cost of the burger is the cost of the burger divided by the cost of the bus ticket or latex frac 2 00 0 50 4 latex the opportunity cost of a bus.