{"id":1086,"date":"2019-07-01T15:08:10","date_gmt":"2019-07-01T15:08:10","guid":{"rendered":"https:\/\/sage-new-clone.local\/en-au\/blog\/?post_type=sage_glossary&#038;p=1085"},"modified":"2026-02-05T20:26:56","modified_gmt":"2026-02-05T09:26:56","slug":"what-is-opportunity-cost","status":"publish","type":"sage_glossary","link":"https:\/\/www.sage.com\/en-au\/blog\/glossary\/what-is-opportunity-cost\/","title":{"rendered":"What is opportunity cost?"},"content":{"rendered":"<header class=\"entry-header has-dark-background-color entry-header--has-illustration entry-header--has-illustration--generic\">\n\t<div class=\"container\">\n\t\t<div class=\"entry-header__row row align-center\">\n\t\t\t<div class=\"col col-lg-7 col-xlg-6 entry-header__content\">\n\t\t\t\t\t\t\t<div class=\"component component-single-header\">\n\t\t\t\t\t\t\t\t\t\t<div class=\"entry-header__misc text--subtitle text--uppercase text--small\">\n\t\t\t\t\t\t\t<a href=\"https:\/\/www.sage.com\/en-au\/blog\/glossary\/\" class=\"entry-header__link\">Glossary definition<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t<div class=\"entry-title-wrapper\">\n\t\t\t\t\t<h1 class=\"entry-title\">\n\t\t\t\t\t\tWhat is opportunity cost?\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n\t<div class=\"single-post-details container\">\n\t\t<div class=\"col\">\n\t\t\t<span class=\"reading-time\"> min read<\/span>\n\t\t<button\n\t\t\ttype=\"button\"\n\t\t\tclass=\"social-share-button button button--icon button--secondary js-social-share-button\"\n\t\t\tdata-share-title=\"What is opportunity cost?\"\n\t\t\tdata-share-url=\"https:\/\/www.sage.com\/en-au\/blog\/glossary\/what-is-opportunity-cost\/\"\n\t\t\tdata-share-text=\"Please read this interesting article\"\n\t\t>\n\t\t\t<span class=\"social-share-button__share-label\">Share<\/span>\n\t\t\t<span class=\"social-share-button__copy-label\" hidden>Copy Link<\/span>\n\t\t\t<span class=\"social-share-button__copy-tooltip\" aria-hidden=\"true\" hidden>Copied<\/span>\n\t\t<\/button>\n\n\t\t\t\t<\/div>\n\t<\/div>\n<\/header>\n\n\n\n<p><strong>Opportunity cost<\/strong><\/p>\n\n\n\n<p>The definition of opportunity cost is the potential gain lost by the choice to take a different course of action when considering multiple investments or avenues of business. When weighing two or more courses of action, the opportunity cost refers to the value of the option you necessarily sacrifice in order to pursue the option you decide upon. Regardless of which option is chosen, there will be a cost assigned to the option that is forgone\u2014that is the opportunity cost.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-opportunity-cost-formula\">Opportunity cost formula<\/h2>\n\n\n\n<p>Opportunity Cost = Benefit of Chosen Investment \u2013 Benefit of Forgone Investment<\/p>\n\n\n\n<p>In any business, strategic action and investment are key to profitability. Considering the costs associated even with wise decisions is important to decisions going forward. While this opportunity cost definition chiefly references business strategy, it may also be applied advantageously to personal finance decisions.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-trade-off-examples\">Trade-off examples<\/h2>\n\n\n\n<p>Having examples can help to achieve a clearer understanding of the concept of opportunity costs. Three trade-off scenarios are discussed below.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>A business has $100,000 to invest in a financial product, such as stocks, bonds, or other securities. The business must choose between Product A, which has a return of 3%, and Product B, which has a return of 4%. The difference between them \u2013 1% \u2013 represents the opportunity cost in this scenario.<\/li>\n\n\n\n<li>A business has $20,000 to spend on a new piece of industrial equipment. One option would increase the company\u2019s output by an estimated 2%, while the other would increase output by an estimated 4%. The 2% difference is the opportunity cost in this example.<\/li>\n\n\n\n<li>A business can manufacture 5,000 units of Product A per business day, or 2,500 units of Product B during the same time period. For every unit of Product B the company manufactures, the same company could manufacture two units of Product A.<\/li>\n<\/ul>\n\n\n<div class=\"single-cta\">\n\t<div class=\"single-cta__positioner\">\n\t\t<div class=\"single-cta__wrapper has-dark-background-color\">\n\t\t\t<div class=\"single-cta__content\">\n\t\t\t\t\t\t\t\t<h2 class=\"single-cta__title h3\">Subscribe to the Sage Advice Newsletter<\/h2>\n\n\t\t\t\t\t\t\t\t\t<div class=\"single-cta__description\">\n\t\t\t\t\t\t<p>Get a roundup of our best business advice in your inbox every month<\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<a\n\t\t\t\t\t\thref=\"#gate-20ec4af6-53dd-41ab-81ed-95d438e3bb90\"\n\t\t\t\t\t\tclass=\"single-cta__button button button--primary\"\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t>Subscribe<\/a>\n\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<img decoding=\"async\" width=\"1064\" height=\"810\" src=\"https:\/\/www.sage.com\/en-au\/blog\/wp-content\/uploads\/sites\/5\/2019\/01\/GettyImages-626184462-1064x810.jpg\" class=\"single-cta__image\" alt=\"\" loading=\"lazy\" srcset=\"https:\/\/www.sage.com\/en-au\/blog\/wp-content\/uploads\/sites\/5\/2019\/01\/GettyImages-626184462-1064x810.jpg 1064w\" sizes=\"auto, (min-width: 48em) 33vw, 100vw\" \/>\t\t\t<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Opportunity cost The definition of opportunity cost is the potential gain lost by the choice to take a different course of action when considering multiple investments or avenues of business. When weighing two or more courses of action, the opportunity cost refers to the value of the option you necessarily sacrifice in order to pursue [&hellip;]<\/p>\n","protected":false},"author":708,"featured_media":0,"template":"","meta":{"_sage_video":false,"footnotes":""},"tags":[196,138,139],"class_list":["post-1086","sage_glossary","type-sage_glossary","status-publish","hentry","tag-business-advice","tag-business-management","tag-business-strategy"],"distributor_meta":false,"distributor_terms":false,"distributor_media":false,"distributor_original_site_name":"Sage Advice Australia","distributor_original_site_url":"https:\/\/www.sage.com\/en-au\/blog","push-errors":false,"_links":{"self":[{"href":"https:\/\/www.sage.com\/en-au\/blog\/api\/wp\/v2\/sage_glossary\/1086","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sage.com\/en-au\/blog\/api\/wp\/v2\/sage_glossary"}],"about":[{"href":"https:\/\/www.sage.com\/en-au\/blog\/api\/wp\/v2\/types\/sage_glossary"}],"author":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-au\/blog\/api\/wp\/v2\/users\/708"}],"version-history":[{"count":1,"href":"https:\/\/www.sage.com\/en-au\/blog\/api\/wp\/v2\/sage_glossary\/1086\/revisions"}],"predecessor-version":[{"id":4373,"href":"https:\/\/www.sage.com\/en-au\/blog\/api\/wp\/v2\/sage_glossary\/1086\/revisions\/4373"}],"wp:attachment":[{"href":"https:\/\/www.sage.com\/en-au\/blog\/api\/wp\/v2\/media?parent=1086"}],"wp:term":[{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-au\/blog\/api\/wp\/v2\/tags?post=1086"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}