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The value of the next best choice that you give up The person has 15 dollars to buy Ticket for Movie or T-shirt The Opportunity Cost of buying either item, is the item that they are forgone Opportunity cost is the highest-valued option forgone

Implicit Cost: intangible costs that are not easily accounted ex: Time & efforts, goodwill, amortization. Explicit Cost: Explicit costs represent clear, obvious cash outflows. ex: wage expense, rent or lease costs, and the cost of materials that go into the production of goods.

1.) The opportunity cost of Lee is to becoming doctor , Lee becoming engineer.

What he chose What he gave up Being a engineer was Lee opportunity cost.

O.C are not restricted to Monetary or Financial costs: But Also, Lost Time Pleasure or any other benefit that provides utility

O.C is not resource used it is cost what else could you have done with these resources

JERRY holds stocks worth $10,000. He has the option of either selling them for $15, 000 at present or to wait for 3 months by which time the prices are expected to go further up. Being the cautious person he is, Jerry decides to sell them for $15, 000 today as he is of the opinion that if, instead of rising the stock prices may fall then he might incur a loss. By giving up on the opportunity to sell his $10, 000 worth stocks in future for a price higher than $15, 000, he is incurring an opportunity cost, the value of which would be decided 3 months later. Therefore, his opportunity cost is the future price of his stocks which may be more or less than $15, 000 or even lesser than $10,000.

Here's another example. Let's say you have $15,000 and your choice is to either buy shares of Company XYZ or leave the money in a CD that earns only 5% per year. If the Company XYZ stock returns 10%, you've benefited from your decision because the alternative would have been less profitable. However, if Company XYZ returns 2% when you could have had 5% from the CD, then your opportunity cost is (5% 2% = 3%).

Problem3: Tom has just graduated from medical college and he

has been offered a job at one of the most prestigious hospitals in town. The job would pay him $45, 000 a year. However, his uncle, who runs a health care and fitness center, has also offered him a position for $35, 000 a year. However, Tom wishes to enroll for a medical research program at a foreign university, which would cost him $38, 000, and eventually does so. Calculate his opportunity cost.

Number of Economic Alternatives = 3 ($45, 000 job, $35, 000 job and $38, 000 research program) Desired Alternative = - 38, 000 (shown in negative as it this alternative would cost the subject rather than earn him financial remuneration) Next Best Alternative = 45, 000 Since, Opportunity Cost = Cost of Selected Alternative - Cost of Next Best Alternative Therefore, Opportunity Cost = -38, 000 -45, 000 = -83, 000 Hence, his opportunity cost not only includes the cost his Desired Alternative would incur but also the value of the Next Best Alternative which he gives up.

 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. The investor's return is 5 percent. The investor considers other ways the $10,000 could have been invested, and discovers a bank certificate with an annual yield of 6 percent and a government bond that carries an annual yield of 7.5 percent. After a year, the bank certificate would have appreciated in value to $10,600, and the government bond would have appreciated to $10,750.

Shares return= 5% Bank Certificates= 6% Government Bond=7.5%

$500 $600 $750

The opportunity cost of purchasing shares is $100 relative to the bank certificate, and $250 relative to the government bond.