Think of opportunity cost as the value of the next best alternative action that's been sacrificed. The cost of doing something is calculated in terms of what you can no longer accomplish, not in terms of how much money you spend! Opportunity cost (or as it's sometimes called in economics --- the true cost, or the economic cost) and money cost are two completely different concepts.
Therefore ....
If you can spend the next hour studying for an exam (Option A) or working for an hourly wage of $10 (Option B), the opportunity cost of studying for an hour equals $10, because you forego the chance to earn $10 in the same hour. This is really why it makes sense to go to school when you're young (when your earning potential is low) and not when you're older and sacrificing big bucks!
See if you can answer this question correctly:
Suppose you have $20 to spend and assume you intend to spend the entire amount. You can spend the $20 on movie tickets that cost $10 each, or you can spend the $20 on paperback books that cost $5 each, or some combination of both. What is the opportunity cost of going to see a movie?
a. the sacrifice of a second movie
b. the sacrifice of a 1st and 2nd book
c. the sacrifice of a 3rd and 4th book
d. the sacrifice of two movies
e. the sacrifice of four books
Correct answer given later!
