What formula is used to find opportunity cost?

To determine opportunity cost, the concept revolves around understanding the trade-offs involved in making decisions. Opportunity cost is defined as the value of the next best alternative that is foregone when a choice is made. Therefore, when considering a decision, what you "give up" is weighed against the benefits you gain from the choice you make.

The correct formula captures this idea by emphasizing the relationship between the two components involved in opportunity costs. By taking the value you give up and dividing it by the value of the gain, you can quantify how the foregone alternative compares to the benefits of the chosen option. This allows for clearer insights into decision-making, as it highlights the value lost when selecting one alternative over another.

This formula correctly illustrates that opportunity cost is not just about the amount given up but also about understanding it in relation to the perceived gains. It provides a practical way to assess the true cost of decisions in economic terms.