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Formula for Calculating Opportunity Cost. We can express opportunity cost in terms of a return (or profit) on investment by using the following mathematical formula:
Opportunity cost is the trade-off that one makes when deciding between two options. The example of choosing between catching rabbits and gathering berries illustrates how opportunity cost works. The related concept of marginal cost is the cost of producing one extra unit of something.
Guide to Opportunity Cost Formula. Here we learn how to calculate opportunity cost using its formula along with some industry examples and calculator.
Calculating Opportunity Cost | Microeconomics. Learning Objectives. Calculate the opportunity costs of an action. It makes intuitive sense that Charlie can buy only a limited number of bus tickets and burgers with a limited budget. Also, the more burgers he buys, the fewer bus tickets he can buy.
To calculate opportunity cost, identify your different options and their potential returns. Do this by calculating how much interest they will earn or how much money they will save. Then, subtract the potential gain of the chosen option from the potential gain of the most lucrative option.
How to calculate opportunity cost. To calculate opportunity cost, you can use the following formula: Opportunity cost = Return on best forgone option
In this article, we discuss opportunity cost and explain how to calculate it, plus review when to use opportunity cost analysis in business. Key takeaways: Opportunity cost is a concept from microeconomics theory.