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This article provides a nice example of opportunity cost. Opportunity cost is a key concept in economics, but it is often poorly understood.
Imagine you are at a decision point in life, a fork in the road. You can think of "opportunity cost" as the value of the road not taken. More formally, opportunity cost is the value of the next best alternative.
Sometimes students have a hard time seeing foregone wages as a real cost. The tuition costs do NOT include room and board, since people must eat and sleep whether they work or go to school.
Admittedly some people, like Kobe Bryant, have a special talent that allows them to earn a huge salary without going to college. For these people, the opportunity cost of college is in the millions, and they are much less likely to go to college.
While some of the uber-talented still do go to college think of starlets like the actress who played Hermione Grangerthey presumably place a lot of value on the social, intellectual benefits of college and have a flexible earning schedule.
For a note of caution on students loans and making sure you get something useful out of college, watch: The rate of return may actually be lower for top 10 MBA programs due to greater costs see reference for Grady below for literature review.
Since EMBA students do not forgo earnings, their payoff time is much quicker, closer to 4 years.PPF and Opportunity Cost Subscribe to email updates from tutor2u Economics Join s of fellow Economics teachers and students all getting the tutor2u Economics team's latest resources and support delivered fresh in their inbox every morning.
Question Relevant costs, opportunity costs. Gavin Martin, the general manager of Oregano Software, must decide when to release the new version of . Opportunity cost is relative to the person making the choice. All of us would have different preferences over how to use that same five dollars.
Awareness of these types of costs . Western Culture is built around ideals of individual choice and freedom. Millions of us fiercely defend our right to make “free” choices, while we ignore how we’re manipulated upstream by limited menus we didn’t choose.
The notion of opportunity cost is critical to the idea that the true cost of anything is the sum of all the things that you have to give up.
Opportunity cost considers only the next best alternative to an action, not the entire set of alternatives, and takes into account all of the differences between the two choices. Cost of Opportunity Essay theory, the opportunity cost of a choice is the value of the best alternative forgone, in a situation in which a choice needs to be made between several mutually exclusive alternatives given limited resources.