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OPPORTUNITY COST

Our lives are filled with everyday economic decisions. Whether you choose to spend one hour watching a TV show instead of studying or whether you choose to buy a book over music album you are essentially taking into account the opportunity cost of each. The time you spend watching TV can't be used to study and the money you spend on the book can't be used to buy the album.
The opportunity cost is essentially the benefits you forgo when taking a certain set of actions. Thus we can define:

Opportunity cost - When utilizing a certain resource, the opportunity cost represents the benefits of the next-highest-valued alternative use of that resource. 

It is important to understand that when we talk about the opportunity cost we only take into account the benefits of the next highest valued resource instead of adding up all of the other alternatives.
The opportunity cost is often expressed as the difference between the expected return value of the two options:
Opportunity Cost = Return of Considered Option - Return of Chosen Option

Consider yourself an accountant that earns a respectable salary of £50.000. If you think you can do better by starting your own accounting business and earn let's say £60.000 then the opportunity cost is £60.000 - £50.000 = £10.000. This implies that the action you are considering to take is better than the one you have already taken(in our case the salary of £50.000). But if you think that the business will only get you £40.000 the the opportunity cost is £40.000 - £50.000 = -£10.000. This implies that the action taken is better than the alternative.
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