What does 'opportunity cost' refer to in decision-making?

'Opportunity cost' is a fundamental concept in economics that reflects the value of the next best alternative that is not chosen when making a decision. It represents the potential benefits or profits that an individual or entity misses out on by choosing one option over another.

For instance, if a person decides to spend their time working on a project instead of going to a movie, the opportunity cost is the enjoyment and experience they forgo from watching the movie. This concept emphasizes that every choice has trade-offs, and understanding these trade-offs helps individuals and businesses make informed decisions that maximize their overall satisfaction or utility.

The other options do not capture the essence of opportunity cost accurately. The total financial cost associated with an investment, for example, pertains to explicit costs rather than the benefits of alternatives. Similarly, overall expenses incurred by an individual focus on tangible costs without considering the value of foregone alternatives. Lastly, the cost of multiple missed opportunities is broader and does not pinpoint the specific value of the next best alternative. Thus, option B clearly encapsulates the true meaning of opportunity cost.