What is an opportunity cost? 

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gsenviro | College Teacher | (Level 1) Educator Emeritus

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It happens so often that we make a choice at the cost of other possible alternatives. By choosing one alternative. we forgo the revenue or cost associated with the other potential alternatives. Opportunity cost is the cost of the forgone alternatives in order to select an alternative or option. For example, many people buy houses or apartments so as to save on the rent. However, one can either live in a house or rent it out. By living in one's own house, one forgoes the potential rental income he/she could have gotten by renting it out. Similarly, by attending college one forgoes the revenues he/she could have earned by working full time. Of course, in all such cases, we hope that the chosen alternative is the best possible action. In the case of self-occupied vs. rented house, one enjoys the comforts of one's own house while saving on the rental expense (one can live in one's own house or rent someone else's house). In the college scenario, one hopes to earn a higher income with a college degree.

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