Opportunity cost is a valuable macroeconomic concept that describes tangible or intangible costs of the decisions we take. Our choices frequently cost us the alternatives we considered at the stage of selection. All alternatives have certain benefits, nevertheless, we express that one of them is more valuable than all others while we make a choice. Calculation of the opportunity cost is valuable for investors who need to anticipate potential returns on the opportunity they are ready to decline.
Opportunity cost can be measured by several means; they are the monetary value, the value of time, and intangible incentives. Choosing one opportunity over another, investors do not necessarily concentrate only on the monetary costs of the investment. It seems that most investors will naturally choose the most financially lucrative options. However, business people may think that a huge income in a while is not worth the enormous input at the beginning. Sometimes, investors suppose that it is more reasonable not to waste their time and resources for huge projects because of other incentives offered by smaller ones.
Evaluation of the opportunity cost is valuable not only to investors who search for the best chance to multiply their assets. As long as we make choices, we evaluate the cost of the dismissed opportunity. Spending money on fancy devices instead of travel or education we lose one precious opportunity because the another one seems even more attractive to us. It is quite useful to evaluate the cost of alternative while making a choice – perhaps, we will find that the opportunity we prefer more is not worth the spending.