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Entrepreneurship

Understanding Opportunity Cost

decisions.jpgThe Closet Entrepreneur: Identical twins Amal and Juan graduate with Bachelors degrees and receive the same job offer. Amal passes up the job offer to pursue a Masters degree while Juan takes the job offer and begins working. Two years pass and Amal graduates and begins working. By this time Juan has been promoted to a position that is comparable to Amal’s starting position, and Juan’s salary has increased to an amount that is comparable to Amal’s starting salary. So who made the better decision, Amal or Juan?
While the example of Amal and Juan is situational, opportunity costs definitely apply in the real world. Opportunity costs especially come into play when time is of the essence like starting a business, fixing and flipping an investment property, selling your home, et cetera.
In some cases, saving money by doing things yourself can be beneficial. Yet the benefit of saving money has to be weighed against the benefit of getting things done quickly and correctly by a professional. For example, anyone can learn how to build a website or remodel an investment property on their own, yet if doing so comes at a cost of several months of lost revenue or rent, then is it really worth it?
Opportunity costs even come into play in the pursuit of happiness. Which would you rather choose, lifelong happiness or a life of misery living out someone else’s dream?
Understanding Opportunity Costs = Better Decisions [The Closet Entrepreneur]

By Ethan Theo

Abe WalkingBear Sanchez is an International Speaker / Trainer / Consultant on the subject of cash flow / sales enhancement and business knowledge organization and use. Founder and President of www.armg-usa.com, WalkingBear has authored hundreds of business articles, has worked with numerous companies in a wide range of industries since 1982 and has spoken at many venues including the Shakespeare Globe Theater in London.