Opportunity Cost Calculator

This opportunity cost calculator is used to estimate the potential return you're giving up by choosing one option over another. To calculate the opportunity cost, you typically enter the price of the option and the expected rate of return to find the money if it had been invested in an alternative asset.

What is Opportunity Cost?

Opportunity cost is the loss of potential benefits from choices by choosing one option over another during the decision-making process.

Imagine you had to select between two delicious treats: a chocolate bar and a bag of chips. You have decided to select the bag of chips. The opportunity cost of your decision is the chocolate bar that you had to give up.

Why is it important to consider opportunity cost?

Opportunity cost is considered important because it helps to show the potential benefits that a business, an investor, or an individual consumer misses out on when choosing one option over another. It allows for better decision-making aimed at maximizing profitability and resource allocation. By using the online opportunity cost calculator, you can make an accurate evaluation of their choices to aim at maximizing profitability and resource allocations.

Opportunity Cost Formula:

To calculate the opportunity cost, use the given below mathematical equation:

Opportunity Cost = Return on Profitable Investment Choice - Return on Investment Chosen

Opportunity Cost = What you gave up - What you gained

How to Calculate Opportunity Cost?

Example:

Suppose you are evaluating enrolling in college. The fee, tuition, and hostel allowances will cost you $100,000 for four years. Instead of this, you have invested that $100,000 in an account that saves a 5% annual interest rate.

Calculation:

Step 1: Calculate the earnings from the savings account

The formula to find the future value of an investment is as follows:

= Present Value * (1 + Interest Rate)^Number of Periods

Present Value = $100,000
Interest Rate = 5% (or 0.05)
Number of Periods = 4 years

= $100,000 * (1 + 0.05)^4

= $121,550.63

Step 2: Find the Opportunity Cost

Opportunity Cost = Potential Earnings - Cost of Choice

Opportunity Cost = $121,550.63 - $100,000

Opportunity Cost = $21,550.63