The university recently inherited a large mansion from a wealthy alumnus.The university plans to use the mansion for faculty parties and to house distinguished guests.The opportunity cost of the mansion to the university is:
A)zero because it was a gift.
B)the original cost of building the mansion.
C)the amount the university would receive if it sold the mansion.
D)the cost of catering the parties at the mansion.

Question

Quizplus · Accepted Answer

The opportunity cost of the mansion is the next best alternative use of the asset, which in this case would be selling the mansion and using the proceeds for other purposes such as funding scholarships, research, or building new facilities. Therefore, the amount the university would receive if it sold the mansion represents the opportunity cost of keeping and using it for faculty parties and guest housing.

The University Recently Inherited a Large Mansion from a Wealthy