Finance and accounting
Opportunity cost
The value of the best option you give up.
Last reviewedWhat does Opportunity cost mean?
Opportunity cost is the value of the best alternative you give up when you make a choice. Using a factory line for product A has an opportunity cost equal to the profit product B could have made on the same line. Good recommendations compare options, including doing nothing.
Where does it come up in case interview prep?
- How government and non-profits work: money, services and the value chainLesson in Government, public sector and non-profits
- Sovereign wealth funds, national visions, trends and casesLesson in Government, public sector and non-profits
- Digital and AI transformationLesson
- Industrial economics and operations: installed base, OEE and make or buyLesson in Industrial manufacturing, machinery and aerospace
Related terms
- Sunk costMoney already spent that cannot be recovered.
- Cost of capital (WACC)The return a company must earn to satisfy its lenders and owners.
- ProfitThe money left over after costs. Revenue minus cost.
- RevenueMoney earned from sales, before costs.
- CostWhat it takes to make and sell the product in a period.
- Fixed costA cost that stays the same when volume changes, within a normal range.
- Variable costA cost that rises and falls with how much you make.
- Semi-variable costA cost with a fixed part and a part that moves with volume.