As you know earlier, economics is a science of making a decision. While making a decision, a person, or organization has to consider several factors. Choosing option one, in most of the cases, has second or third choices.

Imagine yourself a student who is planning to go to a university. The cost of going to a university consists of tuition fees plus the cost of food, rent and so on.

Economists instead prefer to think of the true cost of choosing one option as the opportunity which had to be given up as a result: so in the example, the opportunity cost of going to university is getting a job. The biggest cost of university is likely to be the money that could have been earned, rent – would still need to be made in employment and might even cost more.



Economists think, while taking option A, you have option B as an alternative which must be forgone. The concept of opportunity cost helps to determine if resources are being put to best use. Suppose that a firm bases its operations in a building that it own in the center of town. It may pay no rent for its officers but may be giving up the opportunity of earning a large rental income by leasing out the centrally located building and locating its staff in a cheaper suburban building.

So, the concept opportunity cost means, a benefit that a person could have received, but gave up, to take another course of action. Stated differently, an opportunity cost represents an alternative given up when a decision is made.