It’s the next best alternative to a particular option that’s been executed or is about to be executed. Usually, it’s an overseas investment project.

Or a choice made by a bunch of people or a single person. To get the value of the decision made, we need to know how to calculate opportunity cost in theboomoney.

The formula for opportunity cost 2022 is:

  • Opportunity Cost = Total Revenue – Economic Profit.
  • Opportunity Cost = What One Sacrifice / What One Gain.

How to calculate opportunity costs?

Formula Examples For Opportunity Costs

For a better understanding of the Opportunity Cost formula, let’s look at a simple example.

Opportunity Cost Formula – Example #1

A furniture maker will be given two orders; he can take one. The manufacturer has to choose between the two orders, paying 100 rupees an hour for his labor.

    • 1st order: One table at 7500 rupees. It’ll take 16 hours, and raw materials cost 1800.
    • I’m selling two chairs for INR 4000 each. I use 500 nails for each chair. I use 800 nails for the second chair. The total raw material cost is 800 INR.
Formula for opportunity cost in 2022

The formula for opportunity cost in 2022

Find out the better option and the opportunity costs he misses?

Solution:

As the manufacturer has two orders, we’ll have to calculate the profit for each order separately.

Make money from the first order.

Total Revenue – Economic Profit = Opportunity Cost

  • The first order is 7500 minus ((16 * 100) + 1800)
  • INR (7500 – 3400)
  • 1st order = 4100

Profits from second order

  • INR (4000 x 2) – [(11 x 2 x 100)+ (800 x 2)] Second Order
  • = INR 8000 – 3800
  • 2nd Order = INR 4200

Order No. 2 will yield a much higher profit for the manufacturer (INR 4200 versus INR 4100)

A manufacturer will have to lose 4100 rupees as an opportunity cost during the course of his business. He can only take one order at a time, so he will opt for the second order.