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What Is Opportunity Cost?

• Formula and Calculation

Opportunity Cost and Capital Structure

• Example for a Business
• Example for an Individual

Explicit vs. Implicit Costs

Opportunity cost vs. sunk cost, opportunity cost vs. risk, accounting profit vs. economic profit, the bottom line.

• Business Essentials

Opportunity Cost: Definition, Formula, and Examples

Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom.

Opportunity cost represents the potential benefits that a business, an investor, or an individual consumer misses out on when choosing one alternative over another.

While opportunity costs can't be predicted with total certainty, taking them into consideration can lead to better decision making.

Key Takeaways

• Opportunity cost is the forgone benefit that would have been derived from an option other than the one that was chosen.
• To properly evaluate these costs, the costs and benefits of every option available must be considered and weighed against the others.
• Considering potential opportunity costs can guide individuals and organizations to more profitable decision making.
• This cost of a lost benefit is a strictly internal measure used for strategic planning; it is not included in accounting profit or reflected in external financial reporting.
• Examples of opportunity cost considerations include investing in a new manufacturing plant in Los Angeles as opposed to Mexico City, deciding to upgrade company equipment or hire additional workers, or buying stock A vs. stock B.

Investopedia / Mira Norian

Formula for Calculating Opportunity Cost

We can express opportunity cost in terms of a return (or profit) on investment by using the following mathematical formula:

Opportunity Cost = RMPIC − RICP where: RMPIC = Return on most profitable investment choice RICP = Return on investment chosen to pursue \begin{aligned}&\text{Opportunity Cost} = \text{RMPIC}-\text{RICP}\\&\textbf{where:}\\&\text{RMPIC}=\text{Return on most profitable investment choice}\\&\text{RICP}=\text{Return on investment chosen to pursue}\end{aligned} ​ Opportunity Cost = RMPIC − RICP where: RMPIC = Return on most profitable investment choice RICP = Return on investment chosen to pursue ​

The formula for this calculatin is simply the difference between the expected returns of each option.

Consider a company that is faced with the following two mutually exclusive options:

Option A: Invest excess capital in the stock market

Option B: Invest excess capital back into the business for new equipment to increase production

Assume the expected return on investment (ROI) in the stock market is 10% over the next year, while the company estimates that the equipment update would generate an 8% return over the same time period. The opportunity cost of choosing the equipment over the stock market is 2% (10% - 8%). In other words, by investing in the business, the company would forgo the opportunity to earn a higher return—at least for that first year.

When considering two different securities, it is also important to take risk into account. For example, comparing a Treasury bill to a highly volatile stock can be misleading, even if both have the same expected return so that the opportunity cost of either option is 0%. That's because the U.S. government backs the return on the T-bill, making it virtually risk-free, and there is no such guarantee in the stock market.

Opportunity cost analysis can play a crucial role in determining a company's capital structure . A business incurs an explicit cost in taking on  debt or issuing equity because it must compensate its lenders or shareholders. And each option also carries an opportunity cost.

Money that a company uses to make payments on its bonds or other debt, for example, cannot be invested for other purposes. So the company must decide if an expansion or other growth opportunity made possible by borrowing would generate greater profits than it could make through outside investments.

Companies try to weigh the costs and benefits of borrowing money vs. issuing stock, including both monetary and non-monetary considerations, to arrive at an optimal balance that minimizes opportunity costs. Because opportunity cost is a forward-looking consideration, the actual rate of return (RoR) for both options is unknown at that point, making this evaluation tricky in practice.

Example of an Opportunity Cost Analysis for a Business

Assume that a business has $20,000 in available funds and must choose between investing the money in securities , which it expects to return 10% a year, or using it to purchase new machinery. No matter which option the business chooses, the potential profit that it gives up by not investing in the other option is the opportunity cost.

If a business decision is made to go with the securities option, its investment would theoretically gain $2,000 in the first year, $2,200 in the second, and $2,420 in the third.

Alternatively, if the business purchases a new machine, it will be able to increase its production. Knowing that the machine setup and employee training will be intensive, and the new machine will not be up to maximum efficiency for the first couple of years, the company estimates that it would net an additional $500 in profit in the first year, then $2,000 in year two, and $5,000 in all future years.

By these calculations, choosing the securities makes sense in the first and second years. However, by the third year, an analysis of the opportunity cost indicates that the new machine is the better option ($500 + $2,000 + $5,000 - $2,000 - $2,200 - $2,420) = $880.

The Most Expensive Pizza Ever?

One of the most dramatic examples of opportunity cost is a 2010 exchange of 10,000 bitcoins for two large pizzas—at the time worth about $41. As of June 2024, those 10,000 bitcoins would be worth over $610 million.

Example of an Opportunity Cost Analysis for an Individual

Individuals also face decisions involving such missed opportunities, even if the stakes are often smaller.

Suppose, for example, that you've just received an unexpected $1,000 bonus at work. You could simply spend it now, such as on a spur-of-the-moment vacation, or invest it for a future trip. For example, if you were to invest the entire amount in a safe, one-year certificate of deposit at 5%, you'd have $1,050 to play with next year at this time.

You'd also face an opportunity cost with your vacation days at work. If you use some of them now with your spare $1,000 you won't have them next year (assuming your employer lets you roll them over from year to year).

As with many similar decisions, there is no right or wrong answer here, but it can be a helpful exercise to think it through and decide what you most want.

Company expenses are broadly divided into two categories—explicit costs and implicit costs. The former are expenses like rents, salaries, and other operating expenses that are paid with a company's tangible assets and recorded within a company' financial statements.

By contrast, implicit costs are technically not incurred and cannot be measured accurately for accounting purposes. There are no cash exchanges in the realization of implicit costs. Instead, they are opportunity costs, making them synonymous with imputed costs, while explicit costs are considered out-of-pocket expenses.

A sunk cost is money already spent at some point in the past, while opportunity cost is the potential returns not earned in the future on an investment because the money was invested elsewhere. When considering the latter, any sunk costs previously incurred are typically ignored.

Buying 1,000 shares of company A at $10 a share, for instance, represents a sunk cost of $10,000. This is the amount of money paid out to invest, and it can't be recouped without selling the stock (and perhaps not in full even then).

From an accounting perspective, a sunk cost also could refer to the initial outlay to purchase an expensive piece of heavy equipment, which might be amortized over time, but which is sunk in the sense that the company won't be getting the money back.

In economics, risk describes the possibility that an investment's actual and projected returns will be different and that the investor may lose some or all of their capital. Opportunity cost reflects the possibility that the returns of a chosen investment will be lower than the returns of a forgone investment.

The key difference is that risk compares the actual performance of an investment against the projected performance of the same investment, while opportunity cost compares the projected performance of an investment against the projected performance of another investment.

Accounting profit is the net income calculation often stipulated by the generally accepted accounting principles (GAAP) used by most companies in the U.S. Under those rules, only explicit, real costs are subtracted from total revenue.

Economic profit , however, includes opportunity cost as an expense. This theoretical calculation can then be used to compare the actual profit of the company to what its profit might have been had it made different decisions.

Economic profit (and any other calculation that considers opportunity cost) is strictly an internal value used for strategic decision making.

What Is a Simple Definition of Opportunity Cost?

The term refers to the hidden cost associated with not taking an alternative course of action.

What Is an Example of Opportunity Cost in Investing?

Consider a young investor who decides to put $5,000 into bonds each year and dutifully does so for 50 years. Assuming an average annual return of 2.5%, their portfolio at the end of that time would be worth nearly $500,000. Although this result might seem impressive, it is less so when you consider the investor's opportunity cost. If, for example, they had instead invested half of their money in the stock market and received an average blended return of 5% a year, their portfolio would have been worth more than $1 million. Their opportunity cost in this case would be over $500,000.

How Do You Predict Opportunity Cost?

Any effort to make a prediction must rely heavily on estimates and assumptions. There's no way of knowing exactly how a different course of action will play out financially over time. Investors might use the historic returns on various types of investments in an attempt to forecast the likely returns of their investment decisions. However, as the famous disclaimer goes, "Past performance is no guarantee of future results."

While opportunity costs can't be predicted with absolute certainty, they provide a way for companies and individuals to think through their investment options and, ideally, arrive at better decisions.

Bitcoin Forum. " Pizza for Bitcoins? "

Coinbase. " BTC/USD: Convert Bitcoin (BTC) to United States Dollar (USD) ."

Harvard Business School Online. " How Understanding Sunk Costs Can Help Your Everyday Decision Making Processes ."

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Book Report Writing

Book Report Writing Guide - Outline, Format, & Topics

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Guide to Craft an Outstanding Book Report Outline

Creative and Excellent Book Report Ideas for Students

Writing a book report can be a challenging task for students at all levels of education. Many struggle to strike the right balance between providing a concise summary and offering insightful analysis.

The pressure to submit a well-structured report often leaves students feeling overwhelmed and uncertain about where to begin. Unlike a book review that is longer and more detailed, the purpose of writing a book report is to summarize what happened in the story. 

In this blog, we will learn the book report writing, providing you with step-by-step instructions and creative ideas. Whether you're a reader or just starting your literary journey, this guide will help you write book reports that shine. 

So, let's dive in!

• 1. What is a Book Report?
• 2. How to Write a Book Report Outline?
• 3. How to Write a Book Report?
• 4. Book Report Formatting
• 5. Book Report vs. Book Review - How Do they Differ from Each Other? 
• 6. Book Report Templates for Different Grades
• 7. How to Write a Book Report for High School?
• 8. How to Write a Book Report for College Level?
• 9. Book Report Examples
• 10. Book Report Ideas

What is a Book Report?

A book report is a written summary and analysis of a book's content, designed to provide readers with insights into the book's key elements. It's a valuable exercise for students, offering a chance to look deeper into a book's characters, and overall impact. Why are book reports important? They serve as a way to not only showcase your reading comprehension but also your critical thinking skills. They help you reflect on the book's strengths and weaknesses, and they can be a great tool to start a discussion.

How to Write a Book Report Outline?

Before you start writing a book report, it's crucial to create a well-organized outline. A book report outline serves as the roadmap for your report, ensuring that you cover all essential aspects. Here's how to create an effective book report outline:

How to Write a Book Report?

Writing an effective book report is not just about summarizing a story; it's a chance to showcase your analytical skills.

Let’s go through the process of creating a compelling book report that will impress your instructor.

How to Start a Book Report

To start a book report follow the steps below:

• Pick the Perfect Book  Selecting the right book for your report is the first crucial step. If you have the freedom to choose, opt for a book that aligns with your interests. Engaging with a book you're passionate about makes the entire process more enjoyable.
• Dive into the Pages Reading the book thoroughly is non-negotiable. While summaries and online resources can be helpful, they can't replace the depth of understanding gained from reading the actual text. Take notes as you read to capture key moments and insights.
• Document Key Insights Keeping a physical notebook for jotting down important points and insights is a tried-and-true method. This tangible record allows for quick reference when you're ready to write your report.
• Collect Powerful Quotes Quotes from the book can be the secret sauce that adds weight to your report. Choose quotes that align with your report's themes and ideas. These quotes will serve as evidence to support your analysis and perspective.
• Craft Your Report Outline An book report outline serves as your roadmap for creating a structured and coherent report. Ensure it includes all the vital elements, from basic book information to your in-depth analysis. An organized outline keeps your writing on track.

Writing Your Book Report

Now that you've completed the preliminary steps, it's time to put pen to paper (or fingers to keyboard). Follow these guidelines for an exceptional book report:

• Introduction: Open with a captivating introduction that introduces the book, its author, and your main thesis. This initial "hook" draws readers in and sparks their interest.
• Plot Summary: Concisely summarize the book's plot, including key events, main characters, and the overall narrative. Offer enough information for understanding without revealing major spoilers.
• Analysis: The core of your report, where you dissect the book's themes, characters, writing style, and any symbolism. Back your insights with book quotes and examples, revealing the author's intentions and how they achieved them.
• Conclusion: Summarize your main points, restate your thesis, and share your overall evaluation of the book. End with a thought-provoking statement or recommendation to leave readers engaged and curious.

Book Report Formatting

When it comes to formatting a book report, simplicity and clarity are key. Here's a straightforward guide on the essential formatting elements:

Book Report vs. Book Review - How Do they Differ from Each Other? 

The table below highlights how is a book report different from a book review :

What are the SImilarities between Book Report and Book Review?

Here are the things that are added in both a book report and a book review.

• Bibliographic details
• Background of the author
• The recommended audience for the book
• The main subject of the book or work
• Summary of the work and the only difference is that in the review, a critical analysis is also added

Due to the similarities, many students think that both of these are the same. It is wrong and could cost you your grade.

How to Write a Nonfiction Book Report? 

Writing a nonfiction book report may seem daunting, but with a few simple steps, you can craft an informative report. Here's a streamlined guide:

• Read Actively: Carefully read the chosen nonfiction book, highlighting key information. For instance, if you're reporting on a biography, mark significant life events and their impact.
• Introduction: Begin with the author's name, the book's publication year, and why the author wrote the book. Create an engaging opening sentence, such as "In 'The Immortal Life of Henrietta Lacks,' Rebecca Skloot delves into the fascinating world of medical ethics."
• Focused Body: Structure the body into three paragraphs, each addressing crucial aspects. For instance, in a report on a science book, one paragraph could cover the book's key scientific discoveries.
• Concluding Thoughts: Share your personal opinion, if applicable. Would you recommend the book? Mention reasons, like "I highly recommend 'Sapiens' by Yuval Noah Harari for its thought-provoking insights into human history."

Writing a nonfiction book report requires adhering to facts but can still be enjoyable with a strategic approach.

How to Write a Book Report without Reading the Book?

Short on time to read the entire book? Here are quick steps to create a book report:

• Consult Summary Websites: Visit websites providing book summaries and analyses. For instance, SparkNotes or CliffsNotes offer concise overviews.
• Focus on Key Details: Select 2-3 crucial aspects of the book, like major themes or character development. Discuss these in-depth.
• Consider a Writing Service: Utilize professional writing services when time is tight. They can craft a well-structured report based on provided information.
• Offer a Unique Perspective: Differentiate your report by approaching it from a unique angle. For example, explore a theme or character relationship that hasn't been extensively covered by peers.

While challenging, writing a book report without reading the book is possible with these strategies.

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Book Report Templates for Different Grades

Students studying at different levels have different skills and ability levels. Here is how they can write book reports for their respective academic levels.

How to Write a Book Report for an Elementary School?

The following are some book report templates that you can use for your primary or elementary school.

How to Write a Book Report for Middle School

Here are the book report worksheets that you can use to write your middle school book report.

How to Write a Book Report for High School?

Writing a high school book report includes the following steps:

• Read the book thoroughly and with purpose.
• Make an outline before writing the report as a pre-writing step.
• Follow the guidelines and the given format to create the title page for your report.
• Add basic details in the introduction of your book report.
• Analyze the major and minor characters of the story and the role they play in the progress of the story.
• Analyze the major and significant plot, events, and themes. Describe the story and arguments and focus on important details.
• Conclude by adding a summary of the main elements, characters, symbols, and themes.

How to Write a Book Report for College Level?

Follow this college book report template to format and write your report effectively:

• Understand the Assignment: Familiarize yourself with the assignment and book details to ensure proper adherence.
• Read Thoroughly: Read the book attentively, noting essential details about the plot, characters, and themes.
• Introduction: Craft an informative introduction with bibliographic details. 

• Summary: Summarize key aspects like setting, events, atmosphere, narrative style, and the overall plot. 

• Plot: Cover the entire story, highlighting essential details, plot twists, and conflicts. 

• Conclusion: Summarize the story and assess its strengths and weaknesses. Unlike a review, a book report provides a straightforward summary.

Book Report Examples

Book Report of Charlie and the Chocolate Factory

Book Report of Harry Potter and the Sorcerer’s Stone

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Book Report Ideas

Basic ideas include presenting your narrative and analysis in simple written form, while more creative ideas include a fun element. Some notable books to choose from for your book report writing assignment are mentioned below:

• "To Kill a Mockingbird" by Harper Lee
• "1984" by George Orwell
• "The Great Gatsby" by F. Scott Fitzgerald
• "Pride and Prejudice" by Jane Austen
• "The Catcher in the Rye" by J.D. Salinger
• "The Lord of the Rings" by J.R.R. Tolkien
• "Harry Potter and the Sorcerer's Stone" by J.K. Rowling
• "The Hunger Games" by Suzanne Collins
• "The Diary of Anne Frank" by Anne Frank
• "The Hobbit" by J.R.R. Tolkien

Need more ideas? Check out our book report ideas blog to get inspiration!

To Sum it Up! Crafting a good book report involves striking the right balance between introducing the book, summarizing its key themes, and avoiding spoilers. It's a delicate art, but with the right guidance you can grasp this skill effortlessly. 

Need expert assistance with writing your book report? MyPerfectWords.com is here to help you out!

If you're asking yourself, "Can someone write my essays online ?"Our professional writers have the answer. We can write a custom book report according to your personalized requirements and instructions. Get a high-quality book report to help you earn the best grades on your assignment.

Frequently Asked Questions

What are the parts of a book report.

A book report often contains different sections that describe the setting, main characters, and key themes of the story. A common type is an expository one which details what happened in detail or discusses how people feel about it.

Is a report a summary?

No, a summary is more detailed than a book report. A book report is usually based on a short summary of the book, while a standalone summary is more detailed and could have headings, subheadings, and supporting quotes.

How many paragraphs should be included in a book report?

The book report is a typical assignment in middle and high school, usually with one introduction, three body, and one conclusion paragraph.

The number of paragraphs could vary depending on the academic level, with an expert or professional book report having more than three body paragraphs.

How long is a book report?

It should not exceed two double-spaced pages, be between 600 and 800 words in length. Your book report is a written reflection on the content of a novel or work of nonfiction.

How do you end a book report?

Sum up your thesis statement and remind the readers of the important points, one final time. Do not add any new ideas or themes here and try to leave a lasting impression on the reader.

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Dr. Barbara is a highly experienced writer and author who holds a Ph.D. degree in public health from an Ivy League school. She has worked in the medical field for many years, conducting extensive research on various health topics. Her writing has been featured in several top-tier publications.

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Keep reading

Opportunity Cost: The Writer’s Guide

by Brad Pauquette | Jul 28, 2021 | Author Marketing

The math may be hard, but the concept is easy (and so important)! Plus 5 bad investments authors love to make.

What is opportunity cost? You might hear this word thrown around in a business sense from time to time. Opportunity cost is the idea that if you invest in one thing, you sacrifice your opportunity to invest in something else. If cash is a problem for you, you can try winning some by playing arcade games like 온라인 카지노 . It’s important to be aware of the red flags how to spot fake investment opportunities.

Your investment could be time or money. If I invest my time this afternoon baking a cake then I sacrifice the opportunity to make muffins. When we talk about opportunity cost we’re simply comparing, in hindsight, the best possible profit outcome of all investments you could have made to the investment that you actually made.

For an overly simplified example that will drive your brother-in-law the business nerd crazy, let’s pretend my mission is to buy $1,000 of stock in a soft drink company. I choose to invest in Pepsi (because it’s just better), and over three months my stock increases in value by 3% and I make $30. However, Coca Cola stock increased in value by 4% over the same time period. So if I had invested my $1,000 in Coke, I would have made $40. If I had chosen the best option instead (Coke), I would have made $10 more. My opportunity cost is therefore $10.

From an opportunity cost perspective, it cost me $10 to invest in Pepsi rather than Coke. It’s sort of like I lost $10.

This is all very simple with an example like this. Real life is scarcely ever so simple. Calculating opportunity cost is also complex in that we have to make an “all other things being equal” assumption. For instance, if I had invested in Coke instead of Pepsi, would that have influenced the market and changed the way the stocks performed? (Perhaps not with a $1,000, but what if I had invested $10M?) Wondering about the impact of such decisions is natural, and seeking expert guidance can provide valuable insights. Consider exploring resources like Kiana Danial’s Invest Diva review to gain a deeper understanding of investment strategies and market dynamics.

Opportunity cost is extremely important to large businesses. It allows them to quantify their relative success and failure in the marketplace.

How does it apply to authors?

In real-life business, the math is complex. But the concept is very simple, and it’s a concept that every author must take to heart.

You only have so many hours in a day. You only have so much money to invest in yourself. When you choose to invest in something, you are depriving yourself of the opportunity to do something else.

The big issue for authors is that typically the things we like to do have an extremely high opportunity cost when compared to the things we ought to do .

For instance, authors love to have book release parties. They’ll spend hundreds of dollars and many hours organizing an event which, while fun, usually results in zero new books sold. (Almost all of the books bought at an event like this are bought by people, close friends and family, who would have bought the book anyway.) If you have time and money to burn, that’s no problem. But most authors don’t. That time and money would have been better spent in a myriad of ways.

Even if you could pull off a great release event for free, the opportunity cost is still high. There are so many less fun ways to spend your time that would result in far higher book sales.

The problem with opportunity cost is that it is a necessarily cynical and greedy approach to decision making. Did it really “cost” me $10 to invest in Pepsi? Of course not, I actually made $30! I should be thrilled. It’s sort of a glass is half-empty approach.

But that’s sometimes the perspective that we need to adopt. This is what profitable businesses do every day.

Authors, with our tremendous imaginations, are often prone to sunny thinking. We’re romantics, many of us, so it’s so easy to rationalize doing what we like the best. “Doesn’t anybody care about my happiness?”

But if we’re going to be successful in the business of publishing, we have to be good business people. We have to be shrewd, analytical, and always be actively improving.

Five bad investments authors love to make

Here are five examples of things that I often see authors focus on with high opportunity costs:

• Book signings
• Release events
• Book-related merchandise
• Press releases
• Book Trailer Videos

This is not an exhaustive list, but you may be noticing a theme. Many of these are things that may make the author feel like “a big deal.” But they simply don’t convert. They don’t make sales. They don’t make lifelong fans.

That’s not to say that they don’t ever convert. I’m sure there are some success stories. And things like book trailers and merchandise, for instance, can be very effective for already-famous authors. But for most emerging authors, these activities have a high opportunity cost. They don’t work, and they take time and money away from things that do work.

Social media belongs on this list for most authors. Social media can be a good investment, but 90% of authors investing there are not doing it in a way that actually converts to book sales, and it therefore carries high opportunity cost.

So for the math-disinclined aspiring writer, what is opportunity cost? It’s forcing yourself to ask a hard question, is this the best use of my time and money right now? Does this investment lead to the highest conversion (sales/signups/etc) I can get?

You may not be inclined to sit back and run the calculations (and the opportunity cost of calculating the specific opportunity cost may be quite high 😊), but you can carry this idea with you. How does this investment compare to the results I could achieve with the best investment I can make?

Ideally, we spend 100% of our time and money making the best investments. That’s how you win.

Want to make good investments? I want to help you. My “Arche Year” course is now available from the Kingdom Writers Guild , an online community of box-breaking Christian writers. This 25-class course will teach you to lay a firm foundation for your author’s marketing platform and to effectively grow your audience. You can get full access to the complete course for just $10/month. Check it out here: KingdomWritersGuild.org/arche-year

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Module 1: Economic Thinking

The concept of opportunity cost, learning objectives.

• Describe opportunity cost and its importance in decision-making

Figure 1. What is the opportunity cost of choosing the blue door?

Opportunity Cost

Since resources are limited, every time you make a choice about how to use them, you are also choosing to forego other options. Economists use the term opportunity cost to indicate what must be given up to obtain something that’s desired. A fundamental principle of economics is that every choice has an opportunity cost. If you sleep through your economics class (not recommended, by the way), the opportunity cost is the learning you miss. If you spend your income on video games, you cannot spend it on movies. If you choose to marry one person, you give up the opportunity to marry anyone else. In short, opportunity cost is all around us.

The idea behind opportunity cost is that the cost of one item is the lost opportunity to do or consume something else; in short, opportunity cost is the value of the next best alternative.

Since people must choose, they inevitably face trade-offs in which they have to give up things they desire to get other things they desire more.

Opportunity Cost and Individual Decisions

In some cases, recognizing the opportunity cost can alter personal behavior. Imagine, for example, that you spend $8 on lunch every day at work. You may know perfectly well that bringing a lunch from home would cost only $3 a day, so the opportunity cost of buying lunch at the restaurant is $5 each day (that is, the $8 that buying lunch costs minus the $3 your lunch from home would cost). Five dollars each day does not seem to be that much. However, if you project what that adds up to in a year—250 workdays a year × $5 per day equals $1,250—it’s the cost, perhaps, of a decent vacation. If the opportunity cost were described as “a nice vacation” instead of “$5 a day,” you might make different choices.

Opportunity Cost and Societal Decisions

Opportunity cost also comes into play with societal decisions. Universal health care would be nice, but the opportunity cost of such a decision would be less housing, environmental protection, or national defense. These trade-offs also arise with government policies. For example, after the terrorist plane hijackings on September 11, 2001, many proposals, such as the following, were made to improve air travel safety:

• The federal government could provide armed “sky marshals” who would travel inconspicuously with the rest of the passengers. The cost of having a sky marshal on every flight would be roughly $3 billion per year.
• Retrofitting all U.S. planes with reinforced cockpit doors to make it harder for terrorists to take over the plane would have a price tag of $450 million.
• Buying more sophisticated security equipment for airports, like three-dimensional baggage scanners and cameras linked to face-recognition software, would cost another $2 billion.

Figure 2. Time and Money. Lost time can be a significant component of opportunity cost.

However, the single biggest cost of greater airline security doesn’t involve money. It’s the opportunity cost of additional waiting time at the airport. According to the United States Department of Transportation, more than 800 million passengers took plane trips in the United States in 2012. Since the 9/11 hijackings, security screening has become more intensive, and consequently, the procedure takes longer than in the past. Say that, on average, each air passenger spends an extra 30 minutes in the airport per trip. Economists commonly place a value on time to convert an opportunity cost in time into a monetary figure. Because many air travelers are relatively highly paid businesspeople, conservative estimates set the average “price of time” for air travelers at $20 per hour. Accordingly, the opportunity cost of delays in airports could be as much as 800 million (passengers) × 0.5 hours × $20/hour—or, $8 billion per year. Clearly, the opportunity costs of waiting time can be just as substantial as costs involving direct spending.

Watch It: Opportunity Cost

Watch this video to see some more examples and to develop a deeper understanding of opportunity cost.

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AP®︎/College Macroeconomics

Course: ap®︎/college macroeconomics   >   unit 1.

• Production possibilities curve

Opportunity cost

• Increasing opportunity cost
• PPCs for increasing, decreasing and constant opportunity cost
• Production Possibilities Curve as a model of a country's economy
• Lesson summary: Opportunity cost and the PPC
• Opportunity cost and the PPC

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What Is the Opportunity Cost of Not Writing a Book?

When trying to stay ahead of your competition, the concept of opportunity cost is a fundamental principle. It refers to the benefits an individual or organization foregoes when opting for one alternative over another. For entrepreneurs and business professionals, every decision, including the choice to not pursue a particular venture, like writing a book, entails a potential loss of valuable benefits. This article meticulously examines the specific opportunity costs that come with the decision not to channel your expertise and experiences into authoring a book.

1 – The opportunity cost of lost thought leadership avenues.

Becoming an author is a uniquely powerful way to establish your authority . When you write a book , you do more than simply put words on paper; you declare your expertise and a profound statement of your knowledge and unique insights in your field. Authoring a book elevates your position from merely being a practitioner in your field to being a thought leader who shapes opinions and influences decisions.

What are the specifics of this opportunity cost of not writing a book?

Credibility The credibility that comes with being a published author is unparalleled. Your insights and analyses, once published, receive a stamp of legitimacy that is hard to achieve through other mediums.

Visibility A book extends your reach far beyond your immediate network, exposing your ideas to a broader audience. This visibility can lead to invitations to speak at industry conferences , participate in panel discussions, and contribute to other publications, further cementing your status as an industry leader.

Opportunity Cost By not writing a book, you miss a critical opportunity to establish yourself as an authority in your domain. This loss extends beyond mere recognition; it translates into a diminished influence over industry trends and conversations. The gap left by your absence in the literary domain of your field is often filled by others, potentially overshadowing your contributions and insights.

2 – The opportunity cost of missed networking and collaboration

A book is a powerful tool for networking . It opens doors to new professional relationships and collaborations that might otherwise remain inaccessible. It serves as a conversation starter, a reason for others to reach out to you, and a means to connect with like-minded professionals, potential mentors, or even future business partners.

Collaborative Ventures The process of writing and promoting a book often leads to collaborations with other experts, be it for research purposes, joint speaking engagements, or co-authoring subsequent works. These collaborations can lead to new business ventures or expansion into new markets.

Extended Professional Network The professional network that comes from being a published author often includes high-caliber individuals who can open doors to exclusive opportunities. This network is not just limited to your own field but can extend to complementary industries and disciplines.

Opportunity Cost By not writing a book, the opportunity cost encompasses the vast network and potential collaborative ventures that remain unexplored. This cost manifests not just in the immediate term but can have long-lasting effects on your career trajectory and business growth.

3 – The opportunity cost of missed marketing and platform building potential

A book serves as an excellent marketing tool . It’s a tangible showcase of your expertise and a direct channel to your audience. Unlike other marketing tools, a book is enduring and often perceived as a high-value item.

Brand Building Authoring a book contributes significantly to building your personal brand or your business’s brand . It distinguishes you from competitors and adds a layer of sophistication to your professional persona.

Customer Engagement Books have a unique way of engaging customers and clients. They provide an in-depth view of your knowledge and approach, helping to build trust and credibility with your audience.

Opportunity Cost The opportunity cost here is multi-faceted. Not writing a book means missing out on a powerful brand-building tool and the chance to deeply engage with your audience. It also means forgoing a unique way to stand out in an increasingly crowded market, where personal branding and thought leadership are becoming essential differentiators.

4 – The opportunity cost of missed revenue and financial expansion

Authoring a book is not just a means of sharing knowledge; it’s a viable financial investment. From the direct sales of your book to the ancillary revenue streams that emerge, such as speaking engagements, workshops, consulting opportunities, and even enhanced business deals, the financial benefits are multifaceted and significant.

Direct Sales Revenue Each copy sold contributes to your income, offering a continuous revenue stream long after the initial publication. This passive income can support further ventures or bolster your financial stability.

Indirect Revenue Opportunities A book enhances your value proposition, leading to higher speaking fees, consultancy rates, and workshop earnings. It also often results in increased visibility and credibility, which can lead to more lucrative business deals or partnerships.

Opportunity Cost By not writing a book, you forgo both the direct and indirect financial opportunities. The passive income from book sales and the additional revenue from associated activities represent a significant financial opportunity cost. This lost revenue is compounded over time, representing not just immediate earnings but also the growth potential of those earnings reinvested into your business or personal wealth.

5 – The opportunity cost of squandered competitive advantage

In a crowded market, a book can be a powerful differentiator. It demonstrates your in-depth understanding and unique perspective, setting you apart from competitors. It also signals a commitment to your field, showing clients, customers, and peers that you are deeply invested in and knowledgeable about your industry.

Differentiation in the Market A book positions you as a leading thinker and innovator in your field. This differentiation is critical in attracting clients, customers, and even talent to your business, as it showcases not just your knowledge, but your ability to think critically and solve complex problems.

Authority and Trust Authoring a book establishes a sense of authority and trust that is hard to replicate with other forms of content. This trust is a crucial factor in winning business and forming lasting professional relationships.

Opportunity Cost The opportunity cost of not writing a book in terms of competitive edge is significant. You miss out on the chance to position yourself distinctly in a crowded market. This loss translates into fewer business opportunities, diminished brand recognition, and a weaker negotiating position in deals and partnerships. The cumulative effect of these missed opportunities can significantly impact your long-term business success and market position .

Are you ready to benefit from writing and publishing a book?

The decision not to write a book carries with it significant opportunity costs , affecting not just immediate financial gains but also long-term professional growth and industry influence. These costs include lost thought leadership opportunities, forgone networking and collaboration potential, unutilized marketing and brand differentiation, overlooked revenue and passive income, and a missed competitive edge. As you navigate your professional journey, consider the multifaceted benefits of authoring a book . The investment of time and effort in writing can yield substantial returns in terms of reputation, influence, and professional advancement.

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Opportunity Cost: What’s the Trade-off for Your Book?

It was a harsh lesson at an early age. What? I can’t have it all?!

Nope. You can’t have it all.

Opportunity costs are everywhere

Money drives the classic opportunity-cost calculation because for most of us money is a constrained resource. We have a limited amount to spend, so we must choose wisely where to spend it. In business we ask: Which new product has the largest net present value (NPV)? Which piece of equipment will bring the greater return on investment (ROI)?

Since “time is money,” solopreneurs realize they need to hire assistants and bookkeepers because all that administration takes too much time. They need to spend their time doing the things only they can do. (We even talk about “spending time” the same way we talk about “spending money.”)

Writing a book entails the same calculation: If you write during business time, what are you NOT doing? Sales? Marketing? Administration? Service delivery? If you write on personal time, what are you NOT doing? Binge-watching a mildly entertaining show that you forget as soon as it’s over? Dinking on social media? Exercising? Spending time with friends? Volunteering?

Conversely, what do you give up if you  don’t  write your book? How many doors could a book open? Which relationships might become possible? What visibility might you gain?

Trade-offs only get harder

The older I get the more I find time to be my constrained resource and the trade-offs to be harder. Elizabeth Gilbert (author of Eat Pray Love ) explains why she turned down an invitation to a literary festival in Spain. (A literary festival in Spain!!)

“I needed to decline… as much as I would love to go… I am the bodyguard of … this new novel I’m working on—and everything else has to be defended against… [T]here comes a period in your life where you have to learn how to say no to things that you don’t want to do, but I think the biggest, trickiest lesson is in … learning how to say no to things you do want to do—including going to Spain.”

Oh, she hit the nail on the head for me: the trickiest lesson is learning how to say no to things you do want to do.

Opportunity costs are real

Those “should I/shouldn’t I” decisions—big or small—usually boil down to this: Is the trade-off worth it?

• What are you committed to creating with your money and your time?
• Which things, activities, or people are you willing to say no to in order to create it?
• What are the right trade-offs for you?

Today, if I were offered the choice of candy or a comic book, I’d politely decline both and put my dollar in the bank. Time, however, does not offer us that option. Spend it well.

If you struggle with opportunity cost and trade-offs, you are not alone! I often find my articles reflect something I’ve dealt with (or am dealing with!) myself. If you’d like to discuss different approaches to getting your book done—whether to minimize your time investment or your dollar investment—give me a call at 919-609-2817.

The theory of opportunity cost

Basic principles behind opportunity cost, types of opportunity cost, how to calculate opportunity cost, how opportunity cost influences decision-making.

• Why opportunity cost matters for investors

Opportunity cost FAQs

Understanding opportunity cost.

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• Opportunity cost represents the benefits forgone by choosing one option over another.
• Recognizing opportunity costs can help you make better decisions in all aspects of your life.
• It can be difficult to identify opportunity costs when the benefits of the alternative choice aren't easily quantifiable.

Opportunity cost is a term that refers to the potential reward that you forgo when choosing one option over the next-best alternative. It's an economic concept that can be applied to many different situations, from a business determining what projects to pursue, to an employee deciding to work overtime or spend that time with their family, to an investor choosing an index fund over a self-managed portfolio.

Opportunity costs can be easily overlooked because sometimes the benefits are unrealized, and therefore, hidden from view. 

Societal resources are limited. As a result, individuals inevitably face trade-offs when making decisions. For example, if an investor decides to put $100 into ABC stock, that is $100 he cannot put into XYZ stock, or alternatively, some other kind of asset, for example a bond. Alternatively, if an individual spends $20,000 on a sedan, he cannot put that same amount toward a minivan. 

Other examples appear in personal decision-making. If a man marries someone, he cannot choose another person to be his spouse. If an individual chooses to go to one university full-time, that will require many spent either in class or studying that cannot be used for other purposes. 

Any time an individual makes a purchase now, he is doing so at the expense of future consumption or savings. In other words, any time someone buys an item in the present, he is giving something up in the future. For example, if someone spends $20 on lunch every day at work instead of packing their own lunch using $5 worth of groceries, they are losing $15 every day through this decision-making. 

Over the course of a year, $15 every week day would add up to thousands of dollars, money that could potentially pay for a nice vacation. 

When looking at opportunity costs, economists consider two types: explicit and implicit.

Explicit opportunity cost

"Explicit costs are those that are incurred when taking a specific course of action," says Bob Castaneda, program director of Walden University's College of Management of Technology. 

The explicit opportunity costs associated with a decision could include wages, materials, stock purchases, rent, utilities, and other tangible expenses. Any dollar amount required to move forward with a choice will fall under the explicit costs. 

Implicit opportunity cost

On the other hand, "implicit costs may or may not have been incurred by forgoing a specific action," says Castaneda.

Implicit costs are indirect and can be difficult to identify. They represent the income or other benefits that could possibly have been generated had you made the alternative choice.

The formula to calculate opportunity cost is straightforward. 

Here's a very simple way to put this formula into practice. 

Let's say you are deciding to invest in either Company A or Company B. You choose to invest in company A, which provides a return of 6% in one year. On the other hand, Company B had a return of 10% in the same year. 

The opportunity cost of choosing to invest in Company A versus Company B is 10% minus 6%. With that choice, the opportunity cost is 4%, meaning you would forgo the opportunity to earn an additional 4% per year on your funds. 

Here are some more examples:

• A business owner wants to add a new product to the lineup. It requires an upfront investment of $1,000 to build and market. The opportunity cost is the potential value of that money being spent elsewhere or saved for the future. 
• A worker with a full-time job earning $50,000 per year decides to return to school to complete a master's degree that will enable her to increase her salary. The opportunity cost of this choice is the income she won't earn while focusing her time and energy on school in the meantime. 
• A book lover spends $150 per month feeding her habit. If she switched from buying books to borrowing them from the library, and earned 4% interest on the money she saved, she would have $9,926.85 at the end of five years. Those savings would be the opportunity cost of continuing to buy books.

Now, take a minute to consider the decisions on the horizon in your life. Understanding the opportunity costs associated with your choices could illuminate the best path forward.

In personal finance 

Opportunity costs influence personal finance decision-making by providing individuals with tradeoffs on individual purchases they make. For example, a person who spends $300 on leasing a sedan every month cannot put those funds toward a car payment that might help them build equity over the long-term. 

In business strategy 

Say a shoe manufacturer has the option of investing in new equipment that is expected to provide a return of roughly 9% the first year. Alternatively, the company can put its money into securities that generate income of 3% a year. 

If the organization opts to put its money into the income-producing securities instead of the new equipment, the opportunity cost will be 6% of the principal invested in the first year. 

In everyday life 

Opportunity cost can cause individuals to forgo everyday luxuries and even regular experiences. For example, a person could spend $12 watching a matinee movie, or they could use it to buy lunch. If they opt for the former, they may not have money for the latter, and vice versa.

Opportunity cost vs. sunk costs

Another concept in cost accounting is sunk costs.

"Sunk cost refers to the past costs that you have incurred," says Ahren A Tiller, Esq., Bankruptcy Law Specialist. "Let's say you've invested in company X but gained nothing. The money you spent is a sunk cost, and it can't be recovered. You can't do anything about it, making it irrelevant in your decision-making."

In contrast, opportunity cost considers the loss of potential returns from an alternative investment decision.

For example, the money you've already spent on rent for your office space is a sunk cost. But the funds you haven't spent on office furniture yet would be considered an opportunity cost because you haven't actually spent the money yet. 

Ultimately, Tiller says, "considering the opportunity cost will help show the most profitable option to invest in, making the decision-making process easier for you."

Opportunity cost is whatever you pass up by choosing an option. In economics, everything comes at the cost of something else, so picking one option causes an individual or business to miss out on a different option. 

You can calculate opportunity cost by subtracting the return on the chosen option from the return on the option passed up. 

Opportunity cost can be applied to any kind of decision that involves a trade-off, whether that involves time, money or other resources. 

Consumers can harness opportunity cost to evaluate different choices and the value they will forgo by selecting those choices. 

Opportunity cost helps inform efficient business strategy by ensuring that companies allocate resources in the most effective manner possible in an effort to achieve their business objectives. 

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The Opportunity Cost of Reading a Book

Reading is good, but it’s not always the best use of your time..

I love books.

Even paper books , though I prefer digital . Most of my reading is currently done through audiobooks . I’ll listen while commuting, while out walking, and even in the shower . It’s a great way to read when you don’t have the time to sit down with a nice, warm beverage and immerse yourself. Put in the earphones, push play, and we’re off.

But there’s one situation where I’ve decided that the earphones stay off. I’m not going to read while doing something else. I want to be completely present.

I was heading out the door once to take our daughter out to ride her scooter. I thought, “this will be great! I’ll put on a book, get some exercise from the walk, and it’s daddy-daughter time.”

Then I stopped. I put the earphones back.

She wasn’t just heading out to ride her scooter. She was heading out with me to ride her scooter.

She didn’t need to listen to a book in order to maximize her productivity. She doesn’t know what multitasking is (she’s a great serial monotasker). I was home from work, and she was tickled simply to be doing something fun — with Daddy!

If I put the earphones in, I’d be robbing her of my attention. Worse, I’d be robbing myself of her attention. She won’t always be this happy to spend time with me. I can read a book any time. But listening to my daughter breathlessly describe everything she sees as she propels herself along? That’s available for a limited time only.

Whenever you say yes to one thing, you’re saying no to everything else you could be doing. That’s the opportunity cost—what you didn’t do. When we consider the costs of a project, we tend to focus on the money and the clock (or calendar). But the opportunity costs are just as real, and they can be a lot more expensive.

Here’s are some tips to help keep opportunity costs in check:

• Ask yourself which opportunity is the rarer? The less frequently an opportunity comes along, the higher a price you pay for passing it up. Make sure you’re not passing up something that only comes along once in a blue moon for something you can do at any time.
• Plan ahead of time. The more time you spend in Quadrant 2 planning, the more likely you are to see opportunities coming and be in a position to act on them. If the opportunity pops up suddenly, then you’re more likely to be able to take advantage of it if you know what’s on your plate .
• Which will you regret more if you don’t do? If you’ll regret not doing one but not the other, that’s the one you should do.
• Which will make a bigger difference a year from now? If it’s not going to matter a year from now , then it doesn’t matter now. Pick whichever you’ll be glad you did.
• Carpe diem. A couple years ago, we went to the St. Louis area to visit family. We decided to fly into Chicago and then drive across Illinois so we could attend a live taping of Wait, Wait… Don’t Tell Me! , the NPR news quiz. In this case, the opportunity costs were low enough that we decided to extend our trip by a couple days, see Chicago, and meet Carl Kasell.

Don’t get caught up in analysis paralysis. Make a decision and go. If you determine that it’s the wrong decision, make another one. Fewer things are set in stone than we think.

Find ways to have an activity fulfill more than one role , but don’t go overboard. I was about to take a walk with my daughter while listening to an audiobook. For my roles, that would have been spending time as a Father and Sharpen the Saw x2 (walking and reading). I decided that just two would be better: walking and spending time with my daughter.

Sometimes, it’s better to simplify. Be present. Productivity is about getting what you have to do out of the way so you can spend more time doing what you want to do.

Like going for a walk with your daughter.

Question: When was the last time you said “no” to being busy so that you could focus more on what matters most to you? How did you feel afterwards? Share your thoughts in the comments , on Twitter , LinkedIn , or Facebook .

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Josh Bernoff

The opportunity cost of not writing a book

If you’ve considered writing a book, you have a choice to make. You can get to work on the book, or you can put it off — perhaps forever.

Writing a book will potentially establish you as a leading thinker in your space, and get your ideas out in the space of public discussion where everyone can talk about them. The question you should ask is not, “Should I write a book?” It is, “If I don’t write a book, what else will I do instead?”

Here are some things you might do with the time you don’t spend writing a book:

• Solicit and serve more clients. You can use your usual marketing methods — like advertising, email marketing, and content marketing — to reach and try to close potential clients. If you do a good job, this will generate positive word of mouth. Of course, that is likely to take many months, of not years, to pay off. In the meantime, you’ll have to hustle just as hard and and compete with everyone else on the same basis. It’s unlikely you’ll be able to raise your prices very fast.
• Post more content. You can take the ideas you would put into a book and post them as blog posts, videos, or podcast episodes, and the promote them on social media. You can do your best to get the word out about them. But unless that content is awesomely viral, there are limits on how many people it will reach.
• Solicit more speaking engagements. Many potential authors are public speakers. They tend to get hired because people hear them speak at other events, sometimes giving free speeches. Many great speakers get popular this way. Of course, that depends on how good a public speaker you are — and whether your ideas stand out from the crowd of other speakers.
• Spend time on yourself or your family. If you don’t write a book, you could have more nights and weekends free. You’ll have more time take a hike, meet with friends, go to the kid’s soccer game, or take your sweetheart to the movies. Somehow, though, a lot of people don’t take advantage of these opportunities — life just seems to crowd in and soak up the time.

If you do write a book, what will you gain?

I’ve been writing this as if it’s an either/or kind of choice — more time spent writing a book means less time for other things. But as an author, I can tell you it’s not quite so clear-cut.

If you write a book, you need to do research. What you find in that research can often boost your understanding of your business, your success with clients, or the quality of your speeches.

If you write a book, you need to sharpen your ideas. Sharper, clearer, more well-defined and well-supported ideas are useful immediately in your work and in speeches, even before the book is published.

Writing a book often makes you excited and happy about what you’re doing, which can improve your personal relationships and productivity. Excited people get more done and are often happier with their personal lives.

To be fair, writing a book and promoting it can be expensive. Authors in my nonfiction author survey typically spent at least $3,000 on creating the book and $10,000 to promote it. Those who used hybrid publishers had to pony up another $25,000 or so. That’s money you could use on other marketing.

But consider the benefits of the power of your ideas and your own confidence you get while working on the book, and the ability to generate more visibility, attract more clients, and gain more speaking engagements as author after the book is published.

An encouraging 87% of authors in my survey who published a book agreed it was a good idea. It helped take their visibility and their business to a new level.

So the real question is: do you want to keep plugging away at what you are doing now?

Of do you want to see if the time spent working on a book can take things up a notch?

That’s a more realistic way to think about the choice you have.

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-The Figure Above Shows Prakash's and Gail's Production Possibilities Frontiers

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Calculate Opportunity Cost

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