Rakesh inherited 1 acre of land from his grandfather who paid Rs. 10,000 cash for the land back in 1951. Today, land in the area sells for Rs. 2,00,000 per acre. What is the opportunity cost to Rakesh for keeping the land?

Nothing, since the land was inherited.

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Nothing, since the grandfather paid cash.

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Rs. 10,000, since this is what Rakesh's grandfather paid.

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Rs. 2,00,000, since this is what Rakesh is giving up by keeping the land.

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Solution

The correct option is B Rs. 2,00,000, since this is what Rakesh is giving up by keeping the land.
Opportunity cost refers to the cost of next best alternative foregone. In this case, the opportunity cost to Rakesh for keeping the land is Rs. 2,00,000, since this is what Rakesh is giving up by keeping the land.

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