Question

2. Which of the following statements about opportunity costs is TRUE?
I. The opportunity cost of a given action is equal to the value foregone of all feasible alternat-
ive actions.
II. Opportunity costs only measure direct out of pocket expenditures.
III. To calculate accurately the opportunity cost of an action we need to first identify the next
best alternative to that action.
a) III only.
b) I and III only.
c) II only.
d) None of the statements is true.​

Answer 1

Answer:

C) I and III only.

Explanation:

Answer 2

Answer:

a) III only.

To calculate accurately the opportunity cost of an action we need to first identify the next best alternative to that action.

Explanation:

The “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource.

The opportunity cost of a particular activity is the value or benefit given up by engaging in that activity, relative to engaging in an alternative activity. More simply, it means if you chose one activity you are giving up the opportunity to do a different option.

Formula and Calculation of Opportunity Cost:

Opportunity Cost = FO − CO

$where:\\FO = Return on best forgone option\\CO = Return on chosen option$

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