What is Opportunity Cost?

Answer:
Any time you choose one alternative over another, you

are giving up one thing to get something else. Opportunity cost simply refers to the potential rewards that you give up when you select one option and walk away from an alternative choice.

Whenever you have to make a decision that involves selecting one path versus another, there is an opportunity cost associated with your choice.

An opportunity cost is not literally an expense, in the sense that it does not involve money coming out of your pocket. Rather, it is the lost benefits associated with an option not chosen. Even though opportunity costs are not literally reflected in a company’s financial statements, they are important considerations in the business decision making process.