How to calculate the opportunity cost

The opportunity cost is the value of the best option not made . To understand us, when you buy or perform an activity you are not buying or doing other things that include the alternative cost . Whenever we make a transaction or perform an activity we will have an opportunity cost and normally we try to choose the option that minimizes our opportunity cost. From we will try to explain how to calculate the opportunity cost so that you include it in your decision making.

Steps to follow:

one

The first thing you must do to calculate the opportunity cost is to look for the measure with which we are going to analyze our opportunity cost, for example: we are going to study the case of going to the cinema; we will measure it in euros.

two

Secondly, you must specify what expenses your choice has : Entrance (8 euros), popcorn (4 euros) and public transportation (2 euros).

3

Then we must evaluate what are the options that we will stop doing if we finally go to the cinema: for example watch the movie at home. That option costs you only 2 euros of popcorn at the supermarket. But you would be willing to pay (if we measure satisfaction in euros) 10 euros - in a hypothetical case - to stay at home comfortable on the couch watching the movie. These 10 euros are the value it has for you to stay at home, although in reality it only costs you 2.

4

Finally you calculate the result of your opportunity cost of going to the cinema: if you finally go, you are giving up the 10 euros of benefit of staying at home. You also give up the 2 euros of expense that comes with watching the movie at home. Therefore, the opportunity cost of going to the cinema is 8 euros, the benefit you gave up (10 of benefit of staying at home minus two of spending for popcorn).