Opportunity Cost
Opportunity cost is the lost profit caused by not choosing another alternative. I want to give a simple example about opportunity cost. You have a room and you use the room to be a restaurant. Then you get about 30k dollars in a month. It is a big number, but don’t be happy. Maybe if you use that room to be a game station, you will get 50k dollars. That means you lose 20k dollars of the opportunity cost. You have an opportunity to build a game station, but you build a restaurant, so you get less profits, about 2k dollars.
Opportunity cost is not included as a cash flow of a business, but if you want to build a business, you have to consider the opportunity cost. With considering the opportunity cost, your business will get the maximum profit.
This principle is not only related with a business, it can be implemented in our daily life. If you use 3 hours a day for your gadget, it means that you pay for not using the time to read a book for example. Every choice needs its cost. The cost is what you don’t do when you get an opportunity to do that. (yg)
