Opportunity cost is the cost of the next best alternative that has to be sacrificed to perform a certain action. The concept of opportunity cost is central to the economic perspective of the world, and results from the global phenomenon of scarcity that forces choices to be made.
Work Step by Step
Suppose you have a block of land and you can either rent it to an industry owner or to a real estate builder. Suppose, the builder pays an amount of \$10,000 and the industry owner pays and amount of \$8,000, then if you choose to give the land to the builder for \$10,000, the opportunity cost will be \$8,000. You gave up \$8000 because \$10,000 is best for you. After \$10,000, the next best alternative available for you is $8,000. therefore forgoing \$8,000 is your opportunity cost.