Opportunity costs represent the benefits an individual, investor or business misses out on when choosing one alternative over another. While financial reports do not show opportunity cost, business owners can use it to make educated decisions when they have multiple options before them. Botllenecks are often a cause of opportunity costs.

Opportunity cost is the return of a foregone option less than the return on your chosen option. Considering opportunity costs can guide you to more profitable decision-making. You must assess the relative risk of each option in addition to its potential returns.

Example:
Question: Suppose that you have a free ticket to a concert by Band X. The ticket has no resale value. On the night of the concert your next-best alternative entertainment is a performance by Band Y for which the tickets cost $40. You like Band Y and would usually be willing to pay $50 for a ticket to see them. What is the opportunity cost of using your free ticket and seeing Band X instead of Band Y?
Answer: The benefit you forgo (that is, the value to you) is $10: the $50 benefit of seeing Band Y minus the ticket cost of $40.



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