Opportunity Cost is the value of the next best alternative foregone when choosing one option. Definition: The cost of sacrifice to obtain something. Example: If you choose to work, opportunity cost is the education foregone. For businesses: investing in Product A means forgoing profit from Product B. Calculation: Value of best alternative minus chosen option. Always positive (something is sacrificed). Affects decisions at individual and firm levels. Indian example: Using farmland for housing means losing agricultural output. Relevance: Explains why choices matter, why resources must be allocated efficiently, why decision-making is comparative. In business: choosing production mix requires opportunity cost analysis. ICAI tests: Concept understanding, calculation, application to decisions. Exam tip: Opportunity cost is NOT the same as money spent; it's about what you give up. Questions asking "why not do both?" can be answered by explaining opportunity costs.