What is the term for the cost of the next best alternative that is given up when a decision is made?

Opportunity cost is defined as the value of the next best alternative that is forgone when making a decision. This concept is crucial in economics, as it highlights the trade-offs that individuals and businesses must consider. When choosing one option over another, the benefits that could have been received from the alternative that was not chosen represent the opportunity cost. Understanding opportunity cost helps in evaluating the relative worth of differing choices and in making informed decisions that maximize benefits.

Other cost terms mentioned, such as fixed cost, explicit cost, and sunk cost, describe different financial aspects that do not pertain to the concept of opportunity cost. Fixed costs are expenses that do not change with production levels, explicit costs refer to direct, out-of-pocket expenses, and sunk costs are those already incurred and cannot be recovered. None of these terms capture the essence of weighing alternatives in decision-making the way opportunity cost does.