What is opportunity cost?
Enter what your chosen option earns and what the best option you passed up would have earned to see the opportunity cost of your choice. Or enter an amount you plan to spend, a yearly return and a number of years to see the growth you give up by not investing it.
- Opportunity cost
- $2,500.00
The opportunity cost of this choice is $2,500.00: the option passed up is worth $6,500.00.
- Value of the option passed up
- $6,500.00
- Better choice
- The option you passed up
Opportunity cost: $2,500.00. The opportunity cost of this choice is $2,500.00: the option passed up is worth $6,500.00.
The results are estimates for information only. They are not financial, tax, or legal advice. Check the numbers with your lender or a qualified professional before you decide. Terms of use
How to calculate
Computes the opportunity cost of a choice: the return given up against the best other option, or the growth money spent now would have earned if invested.
Example with the default inputs (Compare Two options, Return of the option you chose $4,000.00, Return of the best option you passed up $6,500.00): The opportunity cost of this choice is $2,500.00: the option passed up is worth $6,500.00.
Method: Two options: opportunity cost = return of the best option passed up − return of the option chosen. Spend or invest: forgone value = amount × (1 + rate)^years; opportunity cost = forgone value − amount.
- Only money counts: time, risk and enjoyment are left out.
- Invested money compounds once a year at a steady rate, with no tax or fees.
- Two-option sums are exact on the typed decimals; compounding is a float power. Money shows to the cent, halves up.
Worked examples
Each example is checked against the calculator on every build.
- Compare Two options, Return of the option you chose $4,000.00, Return of the best option you passed up $6,500.00 gives Opportunity cost $2,500.00, Value of the option passed up $6,500.00, Better choice The option you passed up.Source: OpenStax, Principles of Economics 3e, 2.1 How Individuals Make Choices Based on Their Budget Constraint (opportunity cost is the value of the next best alternative given up). https://openstax.org/books/principles-economics-3e/pages/2-1-how-individuals-make-choices-based-on-their-budget-constraint
- Compare Two options, Return of the option you chose $12,000.75, Return of the best option you passed up $9,000.00 gives Opportunity cost -$3,000.75, Better choice The option you chose.Source: OpenStax, Principles of Economics 3e, 2.1 How Individuals Make Choices Based on Their Budget Constraint (opportunity cost is the value of the next best alternative given up). https://openstax.org/books/principles-economics-3e/pages/2-1-how-individuals-make-choices-based-on-their-budget-constraint
- Compare Spend or invest, Money spent now $1,000.00, Yearly return if invested 3%, Years 4 gives Value of the option passed up $1,125.51, Opportunity cost $125.51.Source: OpenStax, Principles of Finance, 7.2 Time Value of Money (TVM) Basics (FV = PV × (1 + i)^n). https://openstax.org/books/principles-finance/pages/7-2-time-value-of-money-tvm-basics
- Compare Spend or invest, Money spent now $10,000.00, Yearly return if invested 7%, Years 10 gives Opportunity cost $9,671.51.Source: OpenStax, Principles of Finance, 7.2 Time Value of Money (TVM) Basics (FV = PV × (1 + i)^n). https://openstax.org/books/principles-finance/pages/7-2-time-value-of-money-tvm-basics
How it works
Two options. With the return of the option you chose, C, and of the best option you passed up, F:
- Opportunity cost = F − C
- The value of the option passed up is F.
A positive result means the option you passed up earns more. A negative result means your choice earns more.
Spend or invest. With the amount A spent now, a yearly return r (in percent) and n whole years:
- Forgone value = A × (1 + r ÷ 100)ⁿ
- Opportunity cost = forgone value − A
The page also names the better choice: the option that earns more.
Rules:
- Returns of the two options may be negative (a loss), each at most $1 trillion in size. The amount spent is $0 to $1 trillion.
- The yearly return is from −99% to 100%, and the years a whole number from 1 to 100. A forgone value above $1 quintillion gives no answer.
- The two-option arithmetic is exact on the decimals you type; the compounding is a power, worked in floating point. Money shows to the cent, with halves rounded up (away from 0).
Assumptions
- Only money counts. Time, risk and enjoyment are left out.
- Invested money compounds once a year at a steady rate, with no tax or fees.
Worked examples by hand
$4,000 against $6,500. Opportunity cost = 6,500 − 4,000 = $2,500. The option passed up was better.
$12,000.75 against $9,000. Opportunity cost = 9,000 − 12,000.75 = −$3,000.75. The option chosen was better.
$1,000 spent instead of earning 3% for 4 years. Forgone value = 1,000 × 1.03⁴ = 1,000 × 1.12550881 = $1,125.51. Opportunity cost = $125.51.
$10,000 spent instead of earning 7% for 10 years. Forgone value = 10,000 × 1.07¹⁰ = $19,671.51. Opportunity cost = $9,671.51.
Other questions people ask
What is opportunity cost?
Opportunity cost is the value of the next best thing you give up when you make a choice. Every choice has one, because time and money spent on one thing cannot be spent on another.
How do I calculate opportunity cost?
Take the return of the best option you passed up and subtract the return of the option you chose. If you pick a project that earns $4,000 over one that would earn $6,500, the opportunity cost is 6,500 − 4,000 = $2,500.
What does a negative opportunity cost mean?
Here it means the option you chose earns more than the best one you passed up, so the choice gave up nothing in money terms. A chosen return of $12,000.75 against an alternative of $9,000 gives −$3,000.75.
What is the opportunity cost of spending instead of investing?
It is the growth the money would have earned. $1,000 spent today instead of earning 3% a year for 4 years gives up 1,000 × 1.03⁴ − 1,000 = $125.51.
Is opportunity cost only about money?
No. Time counts too: an hour spent waiting is an hour you could have worked or rested. Economists also count lost earnings, such as the wages a student gives up while in college. This calculator counts the money part only.
Why is opportunity cost not on a company’s financial statements?
Accounts record money actually paid out (explicit costs). Opportunity cost is an implicit cost: income that was never earned, so it does not appear on an income statement. Economists include it when they measure economic profit.