Madeleine allows herself $100 per month for purchasing coffee. The diagram below illustrates the choices available to her. FIGURE 1- 2
-Refer to Figure 1- 2. For Madeleine, the opportunity cost of one latte is
A) 1/4 of a latte.
B) 1/4 of a regular coffee.
C) 8 regular coffees.
D) 4 regular coffees.
E) 80 regular coffees.

Question

Madeleine allows herself $100 per month for purchasing coffee. The diagram below illustrates the choices available to her.  FIGURE 1- 2
-Refer to Figure 1- 2. For Madeleine, the opportunity cost of one latte is
A) 1/4 of a latte. 
B) 1/4 of a regular coffee. 
C) 8 regular coffees. 
D) 4 regular coffees. 
E) 80 regular coffees.

Quizplus · Accepted Answer

The opportunity cost of one latte is the value of the next best alternative, which is four regular coffees ($3.20/$0.80 per regular coffee). Therefore, Madeleine could purchase four regular coffees instead of the one latte, making the opportunity cost of the latte four regular coffees. 
The best choice(s) depend on Madeleine's preferences, but one option could be to purchase two regular coffees and one latte ($2.40 + $2.40 + $2.40 = $7.20), leaving her with $92.80 for the rest of the month.

Madeleine Allows Herself $100 Per Month for Purchasing Coffee