This term is used in business to define and include in a decision the value of the best alternative given up when making a choice among several investment opportunities. The most common use of the term is when a stock investor is trying to decide among several opportunities for his/her capital. “If I invest in a ‘safe blue-ribbon stock’ I am giving up the opportunity to invest in a high-risk stock with the possibility of a...
This term is used in business to define and include in a decision the value of the best alternative given up when making a choice among several investment opportunities. The most common use of the term is when a stock investor is trying to decide among several opportunities for his/her capital. “If I invest in a ‘safe blue-ribbon stock’ I am giving up the opportunity to invest in a high-risk stock with the possibility of a high yield.” A non-business use of the term might be “If I spend four years in college, I am giving up the opportunity to travel, or to work for a salary, or to raise a family in those four years.” When a business person is making a decision to move to new quarters, his/her decision must include the “opportunity cost” of staying right where the business is now, such as avoiding moving costs, customer familiarity with the current location, etc. It is a hidden cost seldom definable and quantifiable, and always present, even when the decision-maker does not take it into account.
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