The opportunity cost of making a component part in a factory with no excess capacity is the:
A)net benefit foregone from the best alternative use of the capacity required.
B)fixed manufacturing cost of the component.
C)variable manufacturing cost of the component.
D)cost of the production given up in order to manufacture the component.

Question

Quizplus · Accepted Answer

The opportunity cost is the benefit that could have been gained from the next best alternative, which is the best alternative use of the capacity required. This means that producing a component part would mean giving up the opportunity to use the capacity for something else, and that forgone benefit is the opportunity cost. Therefore, option A is the correct answer.

The Opportunity Cost of Making a Component Part in a Factory