What is the opportunity cost in this scenario?
Mikael has saved $4,000 for his trip to Brazil. He has calculated that his total transportation expenses will be $1,000. The hotel will cost him another $1,500. He will spend about $500 on food. He plans on spending the remaining $1,000 for sightseeing and buying souvenirs.
While booking his plane ticket, he realizes that the price has gone up. His total transportation expenses will go up by $200. He realizes that he cannot cancel his hotel reservation. He also doesn’t want to go cheap on food. Finally, he decides to give up visiting the popular Ouro Preto during his stay in Brazil.
First of all, let's define the concept of opportunity cost. It involves the amount of money or resources that are given up when choosing one existing option over another.
Therefore, in the presented example, due to the price increase in the transportation expenses, the visit to the Ouro Preto has been the opportunity cost beared.
The decision to give up visiting popular Ouro Preto.
Explanation:
Opportunity cost is the profit lost when one choice is chosen over different. The idea is valuable only as a suggestion to consider all logical choices before making a judgment. If economists regard to the “opportunity cost” of a support, they indicate the importance of the next-highest-valued alternative use of that support.
