Please explain what is meant by the opportunity cost of a ch

Please explain what is meant by the opportunity cost of a choice and provide an example to illustrate it.

Solution

Opportunity cost refers to value of a factor in its next best (or second best) alternative use. In other words, Opportunity cost of a commodity is the amount of other goods which has been given up (next best alternative sacrificed) in order to produce that commodity.

For example:- A teacher is getting $ 6000 per month as salary. If he leaves the job and start tution work, he is expected to earn $ 5000 per month. What is his opportunity cost ?

Answer:-  The opportunity cost of school job is $ 5000 per month that the teacher could have earned in the next best alternative use, that is doing tution work.