Page "Microeconomics" Paragraph 16

Opportunity cost is one way to measure the cost of something.

Rather than merely identifying and adding the costs of a project, one may also identify the next best alternative way to spend the same amount of money.

The forgone profit of this next best alternative is the opportunity cost of the original choice.

A common example is a farmer that chooses to farm their land rather than rent it to neighbors, wherein the opportunity cost is the forgone profit from renting.

In this case, the farmer may expect to generate more profit alone.

Similarly, the opportunity cost of attending university is the lost wages a student could have earned in the workforce, rather than the cost of tuition, books, and other requisite items ( whose sum makes up the total cost of attendance ).

The opportunity cost of a vacation in the Bahamas might be the down payment for a house.