Application of Opportunity Cost. For example, assume a firm discovered oil in one of its lands. The opportunity cost will be: $ 1,200 / $1,000 = 1.2. For example, By producing product A, we need to give up a chance to make other products. This $2 says, for every dollar I earn working for one hour as a bartender, I sacrifice $2 working the same hour as a mechanic. Let us now do the same Opportunity Cost example in Excel. A land surveyor determines that the land can be sold at a price of $40 billion. examples of opportunity costs One way to demonstrate opportunity cost lies in the employment of investment capital. This is very simple. For example, a private investor purchases $10, 000 in a certain security, such as shares in a corporation, and after one year the investment has appreciated in value to $10, 500. For example, if your company spent $20,000 on vehicles, then the monetary cost was $20,000. The opportunity cost of the new design of the product will be the increased cost and its inability to compete on price. Opportunity cost is an important economic concept that finds application in a wide range of business decisions. This is easy to see while looking at the graph, but opportunity cost can also be calculated simply by dividing the cost of what is given up by what is gained. Going back to our example, if you chose to spend an hour working as a bartender instead of as a mechanic, then you are actually giving up ($50 mechanic / $25 bartender) = $2 of opportunity cost. A consultant determines that extracting the oil will generate an operating revenue of $80 billion in present value terms if the firm is willing to invest $30 billion today. Opportunity costs are truly everywhere, and they occur with every decision we make, whether it’s big or small. Finding the lowest opportunity cost. In this example, the opportunity costs are continued interest gains on bond "A" and the initial loss of $10,000 on bond "B" while hoping to recover it and increase your profits in the future. Opportunity costs are often overlooked in decision making. Opportunity Cost in Production. If you choose to buy a burger, you won’t be able to afford the Accounting textbook. Opportunity Cost Examples. For example, to define the costs of a college education, a student would probably include such costs as tuition, housing, and books. What It Means for Individual Investors . However, an opportunity cost came with that purchase. There will the opportunity cost in the production process every time we allocate our resources to produce any specific product. Let’s suppose you have $10. Opportunity Cost Calculation in Excel. For Frank, the opportunity costs are the alternative uses of time spent (now) working out and the forgone pleasure of consuming foods that are not part of the diet. 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