Finance and accounting
Opportunity cost
The value of the best option you give up.
Facts checked against sources onWhat 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?
- Supplier concentration and resilienceLesson in Sourcing, trade and supply risk
- Return on capital against its cost: ROIC and WACC in plain wordsLesson in Reading a business through its numbers: the three statements, cash and value
- 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
- Negotiation basics: interests, options and a walk-away pointLesson in Saying so what: synthesis and communication at work
- Corporate and in-house strategyLesson in The same acumen in other roles
- Public sector, development and nonprofitLesson in The same acumen in other roles
- Digital and AI transformationLesson
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.
Learn it in context
See Opportunity cost at work in a lesson from Sourcing, trade and supply risk, with checks as you go.
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