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For example, suppose I made \$100 from an investment. If I'd had deposit the same amount of money in the bank I would have get \$60 of interest. Then the 'forgone profit' or 'opportunity cost' in this example is \$60, and the economic profit is \$40.

Now let me use another example. Suppose I would need to spend 1 hour to make a spreadsheet for my homework assignment, but I instead spent 1.5 hours to write some VBA code and the code generates the spreadsheet programatically. Then the 'forgone cost' or '_____' in this example is 1 hour, and the economic cost is 0.5 hour.

What is the right term that can fit in the _____ in the 2nd example above ?

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The short answer: we don't need a separate term for "foregone cost", because opportunity cost of doing something = highest (forgone benefit - foregone cost).

I'd like to stress two points about opportunity cost.

First, it doesn't make much sense to say "the opportunity cost in this example"; you need to specify the opportunity cost of doing what? We always explicitly state the opportunity cost of doing something, or opportunity cost of choosing something. In your investment vs bank savings example, the opportunity cost of using the money to invest is \$40, and the opportunity cost of depositing the money in the bank is \$60 (assuming investing and saving are the top 2 most productive use of your money, and assuming no ex-ante risk in investing). In your spreadsheet example, suppose you only have two options to spend 1.5 hours: A - you can spend 1 hour to make the spreadsheet, and use the rest 0.5 hour to do whatever is most productive, or B - you can spend 1.5 hours to program in VBA. The opportunity cost of choosing A is the net benefit of doing B, and the opportunity cost of choosing B is the net benefit of doing A.

Second, I highlighted the net benefit at the end of the previous paragraph. Opportunity cost of doing something is the highest foregone net benefit of the alternatives. Here the foregone net benefit is defined as the (foregone benefit - foregone cost). Let me go back to your spreadsheet example. Suppose finishing the spreadsheet gives you \$50 equivalent of utility, regardless of how you make the spreadsheet. However, let's say, manually making the spreadsheet bores you, incurring \$30 equivalent disutility, and making the spreadsheet via VBA bores your less, incurring \$20 disutility. I also assume the most productive use of your time in that 1.5 hours is taking some rest, which gives you \$40 per hour utility. Now here is the net benefit of option A: \$50 (benefit for finishing the spreadsheet) - \$30 (cost for making the spreadsheet manually) + \$20 (benefit for 0.5 hour rest) = \$40. And the net benefit of option B: \$50 (benefit for finishing the spreadsheet) - \$20 (cost for making the spreadsheet via VBA) = \$30. Therefore the opportunity cost of choosing A is \$30, and the opportunity cost of choosing B is \$40. We don't need a term for "foregone cost".

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The closest I can think about is Implicit cost.

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  • $\begingroup$ There are definitely people in this group who speak English better than me, and they may will be able to find word that is better fit $\endgroup$ – user15100 Nov 9 '17 at 22:08
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The closest term that I am aware of is conserved cost, meaning the cost saved by not having to undertake some action.

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  • $\begingroup$ Can you provide a citation for this definition? If so, this seems near-perfect. $\endgroup$ – BKay Jul 11 '18 at 23:33

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