Opportunity Cost
There is no free lunch in life. Even the free slice of pizza offered by a company at a job fair, is NOT free. In exchange for the slice, you gave them your most precious resource....time!
Time that you could have spent walking to the library to pick up the book for the next test,
or Time that you could have spent resolving a confusion with your friend,
or some such.
As long as you understand that the cost of something is not just dollars one pays for it, but the inherent loss of an opportunity to do something else of value, then you can figure out what to do and how much.
Opportunity cost (OC) then is Opportunity Lost.
Should Roger Federer bake muffins for the next party in his house? In the one hour that he bakes, he could be instead playing tennis which in turn would fetch him millions of dollars.....so the opportunity cost of the muffins is not the cost in dollars of flour, sugar and butter, but the millions he misses due to missed tennis!
Clearly OC is not always in terms of dollars, it is in terms of what you missed.
If you know that with 2 hours in your hand you could either read 60 pages of a book, or watch 6 episodes of a show, then the
OC of reading 1 page of a book is 6/60=1/10th of an episode
OC of a show is 60/6 = 10 pages of a book
What is the OC of your attending Macro class?
There is no free lunch in life. Even the free slice of pizza offered by a company at a job fair, is NOT free. In exchange for the slice, you gave them your most precious resource....time!
Time that you could have spent walking to the library to pick up the book for the next test,
or Time that you could have spent resolving a confusion with your friend,
or some such.
As long as you understand that the cost of something is not just dollars one pays for it, but the inherent loss of an opportunity to do something else of value, then you can figure out what to do and how much.
Opportunity cost (OC) then is Opportunity Lost.
Should Roger Federer bake muffins for the next party in his house? In the one hour that he bakes, he could be instead playing tennis which in turn would fetch him millions of dollars.....so the opportunity cost of the muffins is not the cost in dollars of flour, sugar and butter, but the millions he misses due to missed tennis!
Clearly OC is not always in terms of dollars, it is in terms of what you missed.
If you know that with 2 hours in your hand you could either read 60 pages of a book, or watch 6 episodes of a show, then the
OC of reading 1 page of a book is 6/60=1/10th of an episode
OC of a show is 60/6 = 10 pages of a book
What is the OC of your attending Macro class?
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