What exactly is opportunity cost? When you hear the word “opportunity cost” you are really just hearing a more elegant way of saying “trade-off.” Every time you make a decision, there is always a trade-off to ponder about. You have to analyze what you are gaining as well as what you may be giving up. To put it simply, opportunity cost is the price of the next best thing you could have done had you not made your first choice.
Opportunity cost is part of the Ten Principles of Economic in analyzing how people make decisions. A way to break this down is by referring it as explicit and implicit costs. An Explicit Opportunity Cost (or explicit cost for short) are opportunity costs that involve straight forward monetary payment by the producers. The explicit cost of the factors of production not already owned by a producer is the price that the producer has to pay for them.
For example, let’s say that you own a restaurant and you add a new product on the menu that requires $30 in labor, ingredients, electricity, and water. Your explicit opportunity cost is what you could have done with those $30 had you chosen not to add the new item to the menu. You could have taken out of the business, given it to charity, spent it on clothes, or added a different menu item.