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

That means distribution that prioritizes criticality over opportunity cost. — Popular Mechanics, "The Invisible Battle for America’s Airwaves," 17 June 2019 Chances were there to seize a two-score lead early - those missed opportunities cost it dearly. — Nick Moyle, Houston Chronicle, "Texas falls to LSU in instant classic," 7 Sep. 2019 Chances were there to seize a two-score lead early — those missed opportunities cost them dearly. — Nick Moyle, ExpressNews.com, "No. 9 Texas falls to No. 6 LSU in instant classic," 7 Sep. 2019 The problem with taking a quarterback in the first few rounds is the opportunity cost. — Adam Ronis, SI.com, "Wait to Draft a Fantasy QB and Then Go After These Five Targets," 12 Aug. 2019 Still, almost all agreed there has been at least a stiff opportunity cost. — Robert T. Garrett, Dallas News, "In agreeing to secret huddle, Texas House Speaker Dennis Bonnen veers off state GOP’s script," 11 Aug. 2019 His ultimate landing spot will depend on how confident a team can feel relative to the opportunity cost and financial risk of rostering him. — Sean Meagher | The Oregonian/oregonlive, oregonlive.com, "NBA mock drafts 2019: Where will Oregon Ducks Bol Bol and Louis King land?," 20 June 2019 His ultimate landing spot will depend on how confident a team can feel relative to the opportunity cost and financial risk of rostering him. — Sean Meagher | The Oregonian/oregonlive, oregonlive.com, "NBA mock drafts 2019: Where will Oregon Ducks Bol Bol and Louis King land?," 20 June 2019 Both the running back and wide receiver position weren’t critically affected by Watson’s opportunity cost, and the weekly floor at quarterback is well above average. — Conor Orr, SI.com, "SI/4for4 Fantasy Football Mock Draft: 12-Team, Half-PPR, Superflex," 10 July 2019

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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Last Updated

16 Oct 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