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.If Madeleine chooses to allocate all $100 to buying lattes,we can say that her opportunity cost in one month is
A)zero because she bought what she desired.
B)zero because she stayed within her budget.
C)80 cups of regular coffee.
D)40 cups of regular coffee.
E)20 cups of regular coffee.

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.If Madeleine chooses to allocate all $100 to buying lattes,we can say that her opportunity cost in one month is
A)zero because she bought what she desired. 
B)zero because she stayed within her budget. 
C)80 cups of regular coffee. 
D)40 cups of regular coffee. 
E)20 cups of regular coffee.

Quizplus · Accepted Answer

Opportunity cost is the value of the next-best alternative that must be forgone in order to pursue a certain action. If Madeleine chooses to allocate all $100 to buying lattes, she can buy 20 lattes (at $5 each). Therefore, her opportunity cost is the value of what she could have bought instead with that $100, which is 80 cups of regular coffee (at $1.25 each).

Madeleine Allows Herself $100 Per Month for Purchasing Coffee