opportunity cost

noun

Definition of opportunity cost

: the added cost of using resources (as for production or speculative investment) that is the difference between the actual value resulting from such use and that of an alternative (such as another use of the same resources or an investment of equal risk but greater return)

Examples of opportunity cost in a Sentence

Recent Examples on the Web

Similar exploration is needed for health data; the opportunity cost of medical discoveries not made is too high to ignore. J.j. Plecs And John H. Cochrane, WSJ, "Imagine What We Could Cure," 25 Nov. 2018 After all, there’s an opportunity cost to everything. Stephanie Lee, New York Times, "Sometimes You Have to Quit to Get Ahead," 5 June 2018 On top of that, the opportunity cost of not feeding mountains of user data to a robot is skyrocketing. Eric Limer, Popular Mechanics, "Domino's Pizza-Spotting App Is a Window Into a Future of Justified Paranoia," 20 Feb. 2019 That cost falls on the conscripts, who aren’t compensated fairly for the risks and opportunity costs of serving in the military. David R. Henderson, WSJ, "Chicago’s Lesser-Known Free Marketeer," 13 Jan. 2019 But criminal profiling also has an opportunity cost: There are a lot of really hard problems in the world that progress in psychology would help address, and from which criminal profiling might be a distraction. Dylan Matthews, Vox, "Criminal profiling doesn’t work. TV shows should maybe stop celebrating it.," 12 Nov. 2018 This means competitive processes can make remaining participants more inclined to consider opportunity costs, ignore sunk costs, and discount future opportunities more accurately. Richard B. Mckenzie, WSJ, "People Aren’t Rational, and That’s Why We Need Free Trade," 15 June 2018 Well, the biggest cost to graduate education is the opportunity cost. Eric Johnson, Recode, "Full Q&A: 2U CEO Chip Paucek on Recode Decode," 14 Oct. 2018 If Luck’s shoulder remains compromised, Hilton loses more fantasy value than any other player in the NFL, and his opportunity cost comes in the form of Stefon Diggs, Rashaad Penny, Travis Kelce and Alex Collins. Michael Beller, SI.com, "High-Risk, High-Reward Players for the 2018 Fantasy Football Season," 10 July 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'opportunity cost.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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First Known Use of opportunity cost

1894, in the meaning defined above

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Last Updated

18 Apr 2019

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The first known use of opportunity cost was in 1894

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More Definitions for opportunity cost

opportunity cost

noun

Financial Definition of opportunity cost

What It Is

Opportunity cost refers to the value forgone in order to make one particular investment instead of another.

How It Works

For example, let's assume you have $15,000 that you could either invest in Company XYZ stock or put toward a graduate degree. You choose the stock. The opportunity cost in this situation is the increased lifetime earnings that may have resulted from getting the graduate degree -- that is, you choose to forgo the increase in earnings when you use the money to buy stock instead.

Here's another example. Let's say you have $15,000 and your choice is to either buy shares of Company XYZ or leave the money in a CD that earns only 5% per year. If the Company XYZ stock returns 10%, you've benefited from your decision because the alternative would have been less profitable. However, if Company XYZ returns 2% when you could have had 5% from the CD, then your opportunity cost is (5% - 2% = 3%).

Why It Matters

Opportunity cost is all about the most basic of economic concepts: trade-offs. It's a notion inherent in almost every decision of daily life and of investing: if you make a choice, you forgo the other options for now. And what's been given up can sometimes turn out to have been the wiser choice, which is why opportunity cost is best measured in hindsight -- after all, it is impossible to know the end outcome of any investment.

Opportunity costs are a factor not only in consumer decisions, but in production decisions, capital allocation, time management, and lifestyle choices.

Source: Investing Answers

opportunity cost

noun
op·​por·​tu·​ni·​ty cost

Legal Definition of opportunity cost

: the cost of making an investment that is the difference between the return on one investment and the return on an alternative

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