Opportunity cost
The real cost of anything is the best thing you gave up to get it, not the money you handed over.
The claim
Every choice is also a refusal. If you spend Sunday studying, the cost is not zero because studying is free — the cost is the Sunday you could have spent somewhere else, doing the single best alternative thing available to you.
This sounds obvious until you apply it to money. A shop owner who owns her building often says her rent is zero. It is not. She could let the building out. Whatever she would have earned doing that is a real cost of running the shop, and if her profit is smaller than that rent, she is losing money while her books say she is making it.
Economists call the money version accounting cost and the full version economic cost. Only the second one tells you whether a decision was worth making.
The assumption underneath
Opportunity cost assumes you can name the next-best alternative and value it. That is a strong assumption, and it is doing more work than people notice.
It also assumes the alternative was genuinely available. The opportunity cost of your Sunday is not “earning ₹50,000 as a consultant” if nobody was offering you that work. It is whatever you could actually have had.
Where it stops working
Three places, mainly.
When the alternatives are not comparable. What is the opportunity cost of an hour with your mother? There is an answer in principle and it is useless in practice, and pretending otherwise is how economics earns its reputation for knowing the price of everything.
When the alternative is not reversible. Standard opportunity cost treats options as a menu you choose from once. Many real choices close doors permanently, which is a different and harder problem — the value of keeping the option open is itself worth something.
And when people cannot see the alternative at all. The logic only guides behaviour if the forgone option is visible. Much of the usefulness of this idea comes not from telling economists something they did not know, but from making ordinary decisions visible to the people making them.
The one thing to keep
Before any decision, ask what you are saying no to. If you cannot name it, you do not yet know what the decision costs.