Opportunity cost: A review of the literature

The concept of opportunity cost was discussed sporadically in many early economists' writings. Though opportunity cost concept was first proposed by economists, recent studies in opportunity cost are mostly conducted by accounting researchers and engineering economists. Proponents of opportunity cost generally cited that opportunity cost is a valuable decision making criterion, as opportunity cost represents the opportunity forgone in each possible decision. Opponents of opportunity cost often criticize that opportunity cost is not a real cost and cannot be quantified into useful value. The question of the practicality of utilizing opportunity cost by decision makers remains to be answered. This paper first presents the main criticisms of opportunity cost doctrine. Then, an analysis on the characteristics of opportunity cost definitions collected from various research literature is performed. Finally, the implications of the analysis and classifications of the definitions of opportunity cost to engineering management is presented and discussed.