What is meant by opportunity cost?

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Opportunity cost is the value or revenue one must forgo in order to pursue a given course of action. This lost value is due to lost best alternative (from a group of mutually exclusive alternatives).

For example, if one decides to pursue a four year college degree, one must forgo the salary one could have earned by working for four years. This lost salary of four years is the opportunity cost of the four year college degree. Remember that someone will pursue a college degree in hope of getting a better salary after finishing college, as compared to without a college degree. Another example is the opportunity cost of vacation. If someone takes a vacation, he/she must forgo the money they could have made by working for those vacation days.

Hope this helps.

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