Jack received $560 from his grandmother. He decided to shop for a gift for himself and spent $7 for his bus fares. Jack decided to purchase a new bike for $560. For the same amount, he could have purchased a model GH-200 aeroplane that he adored and that would have provided $120 more benefit than the new bike. Jack was also considering a trip to Melbourne to visit his aunt, although he was not too keen about it. He was also interested in pursuing a course leading to a private pilot's licence, although he is a bit scared of heights. One month later, the price of the bike Jack purchased from Hut Ltd had gone down by $100. The bike had cost Hut Ltd $260 of labour and $170 of plant and equipment. The opportunity cost is most likely to be the cost of:
A) the aeroplane.
B) the trip to Melbourne.
C) Hut Ltd's plant and equipment.
D) the private pilot's licence.

Question

Quizplus · Accepted Answer

The opportunity cost refers to the benefits forfeited by choosing one option over another. In this case, if Jack had chosen to purchase the model GH-200 aeroplane instead of the bike, he would have received $120 more benefit. Therefore, the opportunity cost is the cost of the aeroplane. The other options, such as the trip to Melbourne or pursuing a private pilot's licence, may have their own benefits and costs, but they are not the opportunity cost in this scenario.

Jack Received $560 from His Grandmother