If you are Bill Gates, the opportunity cost of graduating from Harvard is very high. If you’re not, then the income that you pass up may be substantially less. Opportunity cost will be different for every individual.

Definition — The cost of passing up the next best choice when making a decision. For example, if an asset such as capital is used for one purpose, the opportunity cost is the value of the next best purpose the asset could have been used for. Opportunity cost analysis is an important part of a company’s decision-making processes, but is not treated as an actual cost in any financial statement.

So you can say that Opportunity Cost is the process of choosing one good or service over another. The item that you don’t pick is the opportunity cost. Even though you might not realize it, you use opportunity cost every single day. Here is an example: I went to Clothes Express and saw a really cool shirt, then I went to Pants Plaza and saw some cool pants. The shirt was 10.00 dollars and the pants were 15.00 dollars. In all that is 25.00 dollars. I only have 20.00 dollars. If I pick the shirt, then the pants are my opportunity cost.

Opportunity cost can also be a choice about what you do during the day. A good example is: My friends and I have one day off to do anything we want. We’ve decided to either go to the movies or shopping. We decided to go to the movies instead of going shopping. The opportunity cost was going shopping.

Now the reason it “varies” is because we are talking about ONE DECISION each time, kind of like a fork in the road. The opportunity cost varies depending on the choice you made.