The term "opportunity cost" refers to the fact that money is finite
and can be spent in a number of ways, or invested, and that each
opportunity to use that money has both obvious and hidden costs as well as
obvious and hidden benefits (Sivaramakrishnan, 2002). The "opportunity
cost" of buying a computer is the money spent to buy it. The real cost,
and the real benefits, will vary from situation to situation. In a
business, upgrading computers might lead to increased productivity. At
home, it might simply be a personal desire to have a faster, more up-to-
date machine, with no real tangible gain, and loss of the earnings the
One place individuals could look at opportunity cost in terms of how
they spend their own personal money could be in acquiring a college
education. While it is very time-consuming to earn a bachelor's degree on
a part-time basis, it is more feasible to complete a master's degree in
that way, making it a rational place to look at opportunity cost.
The first step in analyzing opportunity cost is to consider the two
options. In this case, the student has the choice to take a leave of
absence from work, move out of town, and earn an MBA by attending graduate
school full time. The student's other option is to stay in the job, enroll
in a local MBA program, and complete it over a longer period of time by
attending school part-time. An employee with a master's degree might
reasonably expect to immediately earn about $10,000 per year more than he
or she would with a bachelor's degree (Melton, 2003). So to consider the
cost opportunity for the two options presented, we have to consider not
only the costs of attending school full time out of town as compared to
part-time locally, but the increased earnings over time as well. In
addition, we have to consider the earnings that might have accrued for
money not spent. By looking at these issues we ...