Question

Opportunity cost is

• A. a cost that does not vary with the level of production or sales.
• B. the value of the next best alternative when making a decision.
• C. cost of item sold during an accounting period.
• D. money available to spend now.

Hint:

Opportunity Cost = Benefit of the next best alternative that is sacrificed when a choice is made.

Answer 1

The Correct Option is B

Concept: Whenever a person or business chooses one alternative, another alternative must be sacrificed. The value of the sacrificed alternative is known as opportunity cost.

Step 1: Understand the idea of choice in economics.
Resources are limited, while wants are unlimited. Therefore, every decision involves choosing one option and giving up another.

Step 2: Define opportunity cost.
Opportunity cost refers to: \[ \text{Value of the next best alternative forgone} \] when a decision is made.

Step 3: Illustrate with an example.
Suppose a student spends three hours watching a movie instead of studying. The benefit lost from studying becomes the opportunity cost.

Step 4: Choose the correct option.
Option (B) exactly matches the accepted economic definition. Hence, \[ \boxed{\text{Option (B)}} \] is correct.