What is the opportunity cost ?

Opportunity cost is an economic concept that refers to the value of the next best alternative that is foregone when a decision is made. In simpler terms, it represents what you give up in order to pursue a certain action or choice.

For example, if you decide to spend time studying for an exam instead of going out with friends, the opportunity cost is the enjoyment and experiences you miss out on by not going out. Similarly, if a business chooses to invest capital in one project over another, the opportunity cost would be the potential returns from the project that was not chosen.

Understanding opportunity cost helps individuals and businesses make informed choices by evaluating not just the benefits of their chosen option, but also what they are sacrificing in the process.