Madeleine allows herself $100 per month for purchasing coffee.The diagram below illustrates the choices available to her in each month. FIGURE 1-3 Refer to Figure 1-3.For Madeleine,the opportunity cost of one latte is
A)1/4 of a regular coffee.
B)1/4 of a latte.
C)8 regular coffees.
D)80 regular coffees.
E)4 regular coffees.

Question

Madeleine allows herself $100 per month for purchasing coffee.The diagram below illustrates the choices available to her in each month.  FIGURE 1-3 Refer to Figure 1-3.For Madeleine,the opportunity cost of one latte is
A)1/4 of a regular coffee. 
B)1/4 of a latte. 
C)8 regular coffees. 
D)80 regular coffees. 
E)4 regular coffees.

Quizplus · Accepted Answer

The diagram shows that one latte costs $4, while one regular coffee costs $1. Therefore, the opportunity cost of one latte is the value of the next best alternative, which is 4 regular coffees ($4 divided by $1 per regular coffee). Therefore, Madeleine could purchase 25 regular coffees with her $100 budget, but if she chooses to buy one latte, she is giving up the opportunity to buy 4 regular coffees. Therefore, the best choice for Madeleine is to purchase regular coffees and not lattes, as they provide more value for her money.

Madeleine Allows Herself $100 Per Month for Purchasing Coffee