We could define the opportunity cost as the loss of other alternatives when one alternative is chosen.

Whenever we choose to take a path we leave many others behind, the opportunity cost can be quantified if we have enough data over time to compare both alternatives. For example, let’s imagine that I bought 10 shares of Company A instead of 10 shares of company B, both today quoted at 10€/share.

If in a year I can establish that company B is trading at 15€ and company A is trading at 12€, the opportunity cost will be defined by what I have stopped earning by choosing company A and not company B, that is to say (10 x 15) - (10 x 12) = 30€.


January 1, 2020