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According to this video:

Opportunity Cost of a choice is what you gave up to get it.

Now, let us read the following question:

You are going to a football match next Saturday evening, you have already bought the tickets and cannot resell it. You have just learned that on this Saturday evening, there is also a rock concert that you are interested in. The ticket for the concert costs 40\$ but you value this concert as much as 50\$.

What is the opportunity cost of going to a football match?

a) price of football match’s ticket
b) 40\$
c) 50\$
d) 10\$

My answer was (c). Coz, I gave up the concert which costs 50\$.

However, my teacher says that the correct answer is (d). Why?

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Note that the opportunity cost is what you gave up to get it, not necessarily the price of what you gave up to get it. Your opportunity cost is not what you perceive as the value of the rock concert since you haven’t even bought the tickets to the concert yet.

If you had bought the tickets to the rock concert already, then the opportunity cost of going to the football game would be $50 since that’s the value you placed on the concert and you’ve already bought the tickets.

But in this case, you haven’t purchased the tickets yet so your opportunity cost should be 10 dollars since that is the net gain of that activity: the tickets cost 40 dollars, you value them at $50. You can kind of picture opportunity cost as potential profit. Your ‘potential profit’ of the concert is 10 dollars since the value you think it’s worth outweighs the cost by 10 dollars.

tl;dr You haven’t bought the tickets to the rock concert yet so you have to account for the cost of the tickets as well.

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  • $\begingroup$ You can kind of picture opportunity cost as potential profit. --- I think, this is the key point of understanding. Kindly, elaborate on this. Rest what you wrote are futile. $\endgroup$ – user366312 Oct 19 '20 at 16:02
  • $\begingroup$ I’m not sure how good of a simplification that is, but I wrote it anyways, let me get back to you in just minute here. $\endgroup$ – Cotton Headed Ninnymuggins Oct 19 '20 at 16:12
  • $\begingroup$ Had there the price of the football ticket been given, we could have told that the opportunity cost is the sum of the value of the football match and the value of the movie ticket. No? $\endgroup$ – user366312 Oct 19 '20 at 16:14
  • $\begingroup$ No, opportunity cost is independent of the option you choose. It does not matter the cost of the football game tickets if you want to find its opportunity cost. If the question asked for the opportunity cost of the concert, it would be the rock concert. More specifically, the value of the rock concert when accounting for its actual cost, as in value minus actual cost. $\endgroup$ – Cotton Headed Ninnymuggins Oct 19 '20 at 16:21
  • $\begingroup$ So, how are they calculating the OC in this link? $\endgroup$ – user366312 Oct 19 '20 at 16:30
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Considering opportunity costs as the potential benefits an individual misses out on when choosing one alternative over another. So if you choose going to the concert your benefit (utility) is 10 (50 you value - 40 actual costs). Then if you go to the football match you lose 10, the opportunity cost of the football. If you have already bought the football tickets and cannot resell it, this is a sunk cost, it does not matter.

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