Amanda invests $500,000 in a new business venture.Which of the following correctly identifies the relevant opportunity cost that she faces?
A)The potential profits from the business
B)The discounted present value of future profits from the business
C)The rate of interest that could have been earned on $500,000
D)The probability of losing the initial investment of $500,000
E)The rate of return on $500,000 invested in the business

Question

Quizplus · Accepted Answer

The opportunity cost that Amanda faces is the rate of interest that she could have earned on her $500,000 if she had not invested it in the new business venture. This is because the opportunity cost represents the next best alternative that Amanda had to forego in order to invest in the business. Therefore, option C is the correct choice. The other options are either irrelevant or do not represent the opportunity cost in this scenario.

Amanda Invests $500,000 in a New Business Venture