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What is an Opportunity Cost?

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An opportunity cost is the value of your best alternative to a decision. It is a concept that stems from economic theory that can be used to model decisions. In economics it is used to model the basic relationship between scarcity and choice.
Every business or individual has limited resources. As such, each decision commits resources that could have been used to do something else. For example, if you choose to work late to finish a document, your opportunity cost may be a few hours playing with your kids.
Overview: Opportunity Cost
Function
Decision Making
Economics
Definition
What you give up by making a decision or committing resources to a strategy.
Example
Spending $5 on an ice cream cone means that you have $5 less to spend on other things such as toys or amusement park rides.
Value
In any decision, it's helpful to understand both what you're gaining by committing to a strategy and what you're giving up in terms of missed opportunities.
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