How is opportunity cost typically measured?

Opportunity cost is fundamentally measured based on the benefits of the next best alternative forgone when a choice is made. This concept is rooted in economic theory, which emphasizes that whenever a decision is made to allocate resources—time, money, or effort—there is a cost associated with not pursuing the next best alternative option.

For instance, if an individual decides to spend money on a college education instead of investing that money in a business opportunity, the opportunity cost would be the benefits that could have been gained from that business investment. Assessing this cost enables individuals and organizations to make informed decisions that maximize their potential returns, showing the inherent trade-offs involved in every choice.

By focusing solely on financial terms, the measurement of opportunity cost would be incomplete, as it ignores non-monetary benefits such as personal satisfaction or experiential gains. Evaluating opportunity cost against public opinion or by the time invested in decision-making also fails to capture the essence of the economic trade-off, which is inherently about the value of the alternatives that were not chosen.