cost

Price and cost

In the simplest form, we can describe both price and cost with this equation.

Price = Cost + Profit

However, this equation isn't exactly accurate. It shows that the price is somehow correlated to the cost, which isn't true in some cases. Regardless whether you watching Avatar with a 200+ million budget or The Blair Witch Project filmed with just 22,000, you are going to be paying the same ticket price at the cinema. Here, the price is uncorrelated to the cost.

Price is actually a function of supply and demand. But, cost will in one way or another determine the lower bound for the price. If you want to know more about the relationship between price and cost, check out this post from Chris Dixon.

Packing and opportunity cost

When you decide to pack in an extra pair of shoes into your luggage, the opportunity cost is that you might be able to bring a few extra shirts. Opportunity cost, first developed by John Stuart Mill, is the next best alternative that you have after you made a decision between several mutually exclusive choices. By analyzing the opportunity cost of your decisions, you can assess the true cost of your actions. Flying with a lighter bag allows you to fit in more stuff. If the courier charges more for each additional package, it would be better to find the biggest box and pack everything in.

The opportunity cost of your decisions aren't restricted to monetary or financial cost. Travelling with a more secure bag gives you a peace of mind. Not packing in prohibited items prevent you from being stopped at the immigration checkpoint.

So the next time you are travelling, try to think of the opportunity cost of every item you decide to bring with you. It might not be a good idea to bring 6 pair of shoes with you.