Madeleine allows herself $100 per month for purchasing coffee.The diagram below illustrates the choices available to her.
FIGURE 1- 3
-Refer to Figure 1- 3.If Madeleine chooses to allocate all $100 to buying lattes,we can say that her opportunity cost in one month is
A)80 cups of regular coffee.
B)zero because she stayed within her budget.
C)20 cups of regular coffee.
D)zero because she bought what she desired.
E)40 cups of regular coffee.

Question

Madeleine allows herself $100 per month for purchasing coffee.The diagram below illustrates the choices available to her.
  FIGURE 1- 3
-Refer to Figure 1- 3.If Madeleine chooses to allocate all $100 to buying lattes,we can say that her opportunity cost in one month is
A)80 cups of regular coffee. 
B)zero because she stayed within her budget. 
C)20 cups of regular coffee. 
D)zero because she bought what she desired. 
E)40 cups of regular coffee.

Quizplus · Accepted Answer

Madeleine's opportunity cost is the value of the next best alternative she gives up when she chooses to buy lattes. In this case, the next best alternative is regular coffee, which costs $1.25 per cup. If Madeleine allocates all $100 to buying lattes, she can buy 100/2.5 = 40 cups of lattes. However, if she had chosen to buy regular coffee instead, she could have bought 100/1.25 = 80 cups of regular coffee. Therefore, her opportunity cost is 80 - 40 = 40 cups of regular coffee.

Madeleine Allows Herself $100 Per Month for Purchasing Coffee