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Opportunity costs are measurable. It all depends on your assumptions whether the measurements are reasonable or not. Ex. If I make $2000 a week as a contract
by allwein 15y ago
Opportunity costs are measurable. It all depends on your assumptions whether the measurements are reasonable or not.
Ex. If I make $2000 a week as a contractor on a steady contract, I know that the opportunity cost of taking a week of unpaid vacation time is $2000. That's a reasonable, measurable assumption.
However, I could also say that the opportunity cost of that week of vacation will be $12000, because there might be a one-week rush project that will come in that I can bill for $10000 in addition to my normal steady contract. Assuming there's not a pattern of that happening in the past, it's not a reasonable assumption and thus measurable in that way.
I'd say this second scenario is akin to the record companies assuming that every instance of piracy is also an instance of lost sales.
- achompas 15y agoYou're estimating an opportunity cost here, not measuring it. Goodwill can be measured in the sense that goodwill = purchase price - book value. No assumptions are involved in its calculations--goodwill is calculated based on two fixed values. Opportunity costs are not as concrete. In your example above you state your opportunity cost is $2000...but what if that rush project comes through? What if your steady contract scales back for that week? There are assumptions involved; ideally your opportunity cost would be the expected value of all probable incomes during that week. Identifying those probabilities a priori is impossible. My point is: opportunity costs are based on assumptions. They cannot be measured--only estimated.