Opportunity Cost

What is “Opportunity Cost”? According to definition from Wikepedia , Opportunity Cost is the value of the next best choice available to someone who is pick between several mutually exclusive choices. Thus opportunity costs are not restricted to monetary or financial costs : the real cost of output forgone, lost time or any other benefits that provides utility should also be consider opportunity cost.


For instance, a person who invest $20,000 in stocks market, his opportunity cost is the bank interest he could have earn if he place in Fixed Deposit. Another situation, the opportunity cost of eating a lamb steak could be trying a salmon.

An interesting example: Amy was having a lunch with group of friends in a famous pizza restaurant, and it was really a long queue of people for pizza during that hour, Amy ask the manager to give her a discount of 20% to compensate for them to let their place to other people but the manager decline to do so and allowing Amy and her friends continue their chat.

We should knowing the spending for a customer in a pizza at least $20 and the cost is only $10 (assume), if a customer dine and chat for 2 hrs there, this will affected the next customer decision to lunch over there, if that manager give Amy discount 20%, and Amy would leaving at ½ hrs, hence the manager actually able to get a profit of $6 and by allowing the next customer to dine they can gain another $10 profit, isn’t that worth in this situation? However, the manager denied taking a $4 less but he can accept to maintain the $4 and yet forgo the earning of $10 opportunity.

Hence, the unseen opportunity cost as well should be taken into account when you are plan for your investment portfolio in order to maximize your return or increasing your marginal profit when you make a decision.