When economists refer to the opportunity cost” of a resource, they mean the worth of the subsequent-highest-valued alternative use of that resource. The cost of using something is already the worth of the highest-valued alternative use. This is not a correct cost of attending school at all due to the fact irrespective of whether or not the student attends school, the student nonetheless has costs for room and board. The opportunity expense of picking this solution is then 12% rather than the anticipated two%.
For the sake of simplicity, assume the investment basically yields a return of %, which means the organization gets out precisely what it place in. The actual opportunity cost of deciding on this solution is ten% – %, or 10%. Assume the business in the above instance decides to forgo new equipment and invests in the stock marketplace rather. Solution A in the above example is to invest in the stock market place in hopes of creating returns.