Opportunity Cost

Opportunity Cost is the potential benefit or value lost when one option is chosen over another. It represents the benefits that could have been gained by taking an alternative action. Opportunity cost is fundamental in decision-making as it emphasizes that every choice has a cost in terms of foregone alternatives.

For example, if a business invests in new machinery instead of expanding its workforce, the opportunity cost is the additional labor and productivity that could have been achieved. In personal finance, opportunity cost might refer to the returns one foregoes by choosing to spend rather than invest.