# What is opportunity cost?

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.

- Page: https://www.acalculator.org/finance/opportunity-cost-calculator
- JSON spec: https://www.acalculator.org/finance/opportunity-cost-calculator.json
- Version: 21228c96ca2f

## Default answer

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.

## Inputs

| Key | Label | Description |
| --- | --- | --- |
| mode | Compare | Two options with known returns, or spending money now against investing it. |
| chosen | Return of the option you chose | What the chosen option earns. Negative for a loss. |
| other | Return of the best option you passed up | What the next best option would have earned. Negative for a loss. |
| amount | Money spent now | The amount you spend instead of investing. |
| rate | Yearly return if invested | The return the money would earn each year, compounded yearly. Negative for a loss. |
| years | Years | How long the money would have stayed invested. |

## Outputs

| Key | Label | Description |
| --- | --- | --- |
| cost | Opportunity cost | What the choice gives up: the other option’s return minus the chosen one, or the growth given up. |
| forgone | Value of the option passed up | The return of the best other option, or what the money would have grown to. |
| better | Better choice | Which option earns more. |

## 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.

## 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.
- Two-option sums are exact on the typed decimals; compounding is a float power. Money shows to the cent, halves up.

## Worked examples

1. mode = options, chosen = $4,000.00, other = $6,500.00 gives cost = $2,500.00, forgone = $6,500.00, better = 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.
2. mode = options, chosen = $12,000.75, other = $9,000.00 gives cost = -$3,000.75, better = 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.
3. mode = invest, amount = $1,000.00, rate = 3%, years = 4 gives forgone = $1,125.51, 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.
4. mode = invest, amount = $10,000.00, rate = 7%, years = 10 gives 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.

## FAQ

### 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.

## Sources

- 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; examples in money and time. https://openstax.org/books/principles-economics-3e/pages/2-1-how-individuals-make-choices-based-on-their-budget-constraint (retrieved 2026-10-05)
- OpenStax, Principles of Finance, 7.2 Time Value of Money (TVM) Basics: future value of a single amount, FV = PV × (1 + i)^n. https://openstax.org/books/principles-finance/pages/7-2-time-value-of-money-tvm-basics (retrieved 2026-10-05)
- OpenStax, Principles of Finance, 7.3 Methods for Solving Time Value of Money Problems: $1,000 at 3% for 4 years grows to $1,125.51. https://openstax.org/books/principles-finance/pages/7-3-methods-for-solving-time-value-of-money-problems (retrieved 2026-10-05)