One good way to know opportunity cost is to take out an orange from a fridge and imagine that someone is offering a whooping price of $1.37 for the delicious orange.

But you want to taste the juicy fresh juices of the orange.

And 10m away you see a mouse getting ready to eat pizza you just ordered, and the only way to chase it away is to throw the orange at it before it pollutes the pizza with its deadly germs.

There is only ONE orange. OH NO!

So you have to make a choice right?

Would you want the money?

Or savour the delicious taste of an orange?

Or chase away the mouse?

Hmm.... its a hard choice indeed.

If you take the money, the opportunity cost is that you cannot savour the orange and chase the mouse away.

If you savour the orange, the opportunity cost is you couldnt take the money and chase away the mouse.

If you chase away the mouse, the opportunity cost is you couldnt take the money and taste the orange.

So econs help you to make good choices.

Lets consider the first choice of taking the money. If you take the money, you lose the orange drooling satisfaction and the pizza. The pizza is already worth more than $1.37 (duh) so you would end up making subnormal profit. Lame choice rite?

Lets consider eating the orange. If you eat the orange, you lose the money and the pizza. So its kind of like you pay $1.37 + $x (where $x is the cost of the pizza) to taste the orange. Thats so .___.

And finally lets consider the last choice of chasing away the mouse. If you chase away the mouse, you get to eat the pizza, and since pizza is delicious, its an excellent substitute for orange. So you could also enjoy the satisfaction of good food. Moreover, the cost of the pizza you saved is more than the amount of revenue you could get from selling the orange. And so its quite worth it right? :)

Therefore, it seems like chasing away the mouse is the best choice!

-Adopted from http://sexys6c.blogspot.com