opportunity cost

Definition

The cost of passing up the next best choice when making a decision. For example, if an asset such as capital is used for one purpose, the opportunity cost is the value of the next best purpose the asset could have been used for. Opportunity cost analysis is an important part of a company's decision-making processes, but is not treated as an actual cost in any financial statement.

Use opportunity cost in a sentence

Before purchasing the new office building I determined the opportunity cost of what I could purchase instead to determine if the purchase was worth it.

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idle economic profit