To calculate opportunity cost, use the formula: Opportunity Cost = Return on Foregone Option (FO) − Return on Chosen Option (CO) This means you take the potential return (or benefit) from the option you did not choose and subtract the return (or benefit) from the option you did choose. The result shows what you give up by making the chosen decision. For example, if choosing option A yields a return of $2,000 and the foregone option B would have returned $2,500, the opportunity cost of choosing A is $2,500 − $2,000 = $500. This implies a $500 loss in potential gain by not choosing B. The calculation can be expressed either in monetary terms or percentages, depending on context. For long-term or complex decisions, the Net Present Value (NPV) method can be used to factor in time and future cash flows, identifying the option with the highest value as preferable. In summary:

• Identify all available options.
• Determine the potential return or benefit from each option.
• Subtract the return of the chosen option from the return of the best alternative.
• The difference is the opportunity cost—the cost of the next best alternative foregone.

This approach helps make better business, financial, or personal decisions by understanding the cost of what is sacrificed.