what is opportunity cost 
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 investopedia mira norianformula for calculating opportunity costwe 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 ricpwhere rmpic return on most profitable investment choicericp 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 marketoption b invest excess capital back into the business for new equipment to increase productionassume 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 