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Opportunity Cost

Opportunity cost is the loss of the benefit that could have been enjoyed if the best choice was chosen instead.
#economics
Zettelkasten, June 03, 2021
## Notes - Opportunity cost is the loss of the benefit of the best foregone option that you could have chosen. - You have choices A, B, and C with $B_a = 100$, $B_b = 80$, and $B_c = 50$ as their respective benefit. Considering you've chosen the best option, A, your opportunity cost in this scenario is $80$ because it's the benefit of the best foregone option. - It's a microeconomic theory. - It's a [decision mental model](/zettel/decision-mental-models) because it helps you decide to choose among options. - It's not easy to calculate the exact cost of all options because some are unseen because of the implicit costs. - Implicit costs: these costs are hidden to the naked eye and aren't made known. They're not a direct cost to you. For instance, if you have a vacation home, the implicit cost is the rental income you could have generated if you leased it. - Implicit costs have significant potential. If you choose to start a company instead of earning a known salary, you can make much more than the salary. - Explicit costs: they're direct costs of an action, executed either through a cash transaction or a physical transfer of resources. ## References - [Joshua Kennon. What Is Opportunity Cost?](https://www.thebalance.com/what-is-opportunity-cost-357200) - [Wikipedia. Opportunity cost](https://en.wikipedia.org/wiki/Opportunity_cost) - [Jason Fernando. Opportunity Cost](https://www.investopedia.com/terms/o/opportunitycost.asp) ## Backlinks - [From Reactive Planning Model to Natural Planning Model](/from-reactive-planning-model-to-natural-planning-model)
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