The concept of opportunity cost is the economic principle that explains why making decisions involves trade-offs. Put simply, it’s the lost potential gain from other alternatives when one alternative is chosen. For example, if a business decides to invest in one project, it forgoes any potential gain from investing in other projects. Opportunity costs can be monetary, such as passing on an investment opportunity, or non-monetary, such as sacrificing time spent with loved ones. Understanding opportunity cost helps businesses make smart, informed decisions.