The potential benefit given up when selecting one alternative over another is an opportunity cost.
Opportunity cost refers to what you have to give up to buy what you want in terms of other goods or services. So it is the profit lost when one alternative is selected over another.
This concept of opportunity cost helps us to choose the best possible option among all the available options. Thus, it also maximizes economic profits by helps us to use every possible resource tactfully and efficiently.
Hence, opportunity costs play a major role in decision-making. For instance, if you decide to purchase a new piece of equipment, your opportunity cost is the money spent elsewhere.
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