Question

Q. Which of the following correctly describes the meaning of the “Opportunity Cost”?

• A.
  The additional cost incurred by a consumer in buying an alternative product for an essential commodity.
• B.
  The cost occured to the Government due to various subsidies given to its citizens.
• C.
  The cost borne by poor people to cure their health due to the pollution caused by the rich.
• D.
  The loss occurred to a manufacturer due to selection of an alternative over the other.

Answer 1

The correct option is D

The loss occurred to a manufacturer due to selection of an alternative over the other.

Explanation: When an investor or individual chooses one alternative over another in the production process, then there will be an auxiliary benefit that the investor will miss due to the non selection of the second alternative. This benefit is known as Opportunity cost.

Mathematically

Opportunity Cost = Return on best foregone option - Return on chosen option