What this calculator does
Opportunity cost is the value of the next-best alternative given up when choosing one option over another. Every decision that uses limited time, money or resources rules out some other use of that same resource, and opportunity cost puts a number on what was given up by not taking that other path.
Working out how to calculate opportunity cost is simple once the two options are stated in the same units: it is just the value of the option not chosen, minus the value of the option that was chosen. A positive result means the alternative was worth more, a genuine cost of the choice made; a result of zero or below means the choice made was at least as good as the alternative.
The formula
State the value or expected return of the option you chose, and the value or expected return of the best alternative you gave up, in the same units. Subtract the value of the chosen option from the value of the foregone alternative to get the opportunity cost.
| Term | Meaning |
|---|---|
| Opportunity cost | The value of the best alternative given up by choosing one option over another. |
| Option chosen | The value or return actually realised from the choice that was made. |
| Alternative foregone | The value or return that would have come from the next-best option not chosen. |
The inputs explained
| Field | What to enter |
|---|---|
| Value or return of the option you chose ($) | The value or expected return of the option you actually chose. |
| Value or return of the best alternative you gave up ($) | The value or expected return of the best alternative you did not take. |
When to use it
Comparing two investments
Putting money into one investment rules out putting it into another over the same period; the opportunity cost is the return the unchosen investment would have delivered, compared against the one actually made.
Deciding how to spend time
Time spent on one activity is time not spent on another. Valuing both in comparable terms, such as income foregone, makes the trade-off explicit rather than left as a vague sense of missing out.
Weighing a business decision
Choosing to use capital, staff or equipment on one project means it cannot be used on another at the same time; opportunity cost states plainly what the next-best use of those same resources was worth.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How opportunity cost changes as the foregone alternative gets better
A fixed $5,000 value for the option actually chosen, against a range of values for the best alternative given up.
| Value of alternative foregone | Opportunity cost | Verdict |
|---|---|---|
| $4,000 | $1,000.00 | The option you chose was worth more: no opportunity cost, you came out ahead of the alternative. |
| $4,500 | $500.00 | The option you chose was worth more: no opportunity cost, you came out ahead of the alternative. |
| $5,000 | $0.00 | Both options were worth exactly the same: no opportunity cost either way. |
| $5,500 | $500.00 | The alternative you gave up was worth more: a real opportunity cost was paid. |
| $6,000 | $1,000.00 | The alternative you gave up was worth more: a real opportunity cost was paid. |
| $7,000 | $2,000.00 | The alternative you gave up was worth more: a real opportunity cost was paid. |
Questions
Is opportunity cost the same as a financial loss?
No. Opportunity cost is not money that was lost or spent, it is value that could have been gained from a different choice but was not. The option actually chosen can still be profitable even while carrying an opportunity cost.
What if I cannot put a dollar value on the alternative?
Opportunity cost still applies conceptually even without a precise figure, but comparing options usefully requires putting both on the same scale, whether that is money, time saved, or another consistent measure.
Does opportunity cost only apply to money?
No. It applies to any limited resource, most commonly time, money or capacity. Choosing to spend an evening on one activity has an opportunity cost measured in whatever the next-best use of that evening would have been worth.
How is this different from a sunk cost?
A sunk cost is money or effort already spent that cannot be recovered regardless of what is chosen next. Opportunity cost, by contrast, looks forward to what a current decision gives up, not backward at what has already been spent.
For a related trade-off on the production side of a business, see the marginal revenue calculator. To compare hourly earnings across pay structures when time is the resource in question, see the salary and hourly rate converter.