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What are Opportunity Costs?

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Question: What are Opportunity Costs?
Answer: Unlike most costs discussed in economics, an opportunity cost is not always a number. The opportunity cost of any action is simply the next best alternative to that action - or put more simply, "What you would have done if you didn't make the choice that you did".

I have a number of alternatives of how to spend my Friday night: I can go to the movies, I can stay home and watch the baseball game on TV, or go out for coffee with friends. If I choose to go to the movies, my opportunity cost of that action is what I would have chose if I had not gone to the movies - either watching the baseball game or going out for coffee with friends. Note that an opportunity cost only considers the next best alternative to an action, not the entire set of alternatives.

Opportunity costs are usually easier to understand if you have an example. The article "Baseball Players and Opportunity Costs" gives an example of how opportunity costs can be used in practice.

More Information on Opportunity Costs

Baseball Players and Opportunity Costs

A Season Later: Baseball Players and Opportunity Costs

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