"Opportunity cost is cash flow that could be realised from the best alternative of an owned asset'."   Please give me examples of what this means. 

Asked on by oleboge

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Whenever you choose to do something with your property, you forego some other possible way that you could have used that property.  This is the idea of opportunity cost.

For example, let us say that I have a piece of property in the downtown of a big city.  Let us say that I decide to build a small store on my property.  Let us also say that I could have sold the property to a developer for a great deal more than I make from my store.  I now have an opportunity cost connected to my store.  I have given up all of the money (the cash flow) I could have gotten from selling to the developer (cost of the opportunity).  Instead, I have accepted the opportunity to pay to build a low profit returning store.  This is the meaning of the statement you have given.   


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