A university offers a free shuttle service around campus. What is the opportunity cost of the shuttle service equal to?
A) the wages paid to the shuttle drivers, plus the gasoline expenses
B) the wages paid to the shuttle drivers
C) the highest valued alternative use of the resources devoted to the shuttle program
D) zero, since it is free to students who want to ride

Question

Quizplus · Accepted Answer

The opportunity cost of the shuttle service is equal to the highest valued alternative use of the resources devoted to the shuttle program. This means that if the university did not provide the shuttle service, the resources (such as staff, vehicles, and fuel) could be used for something else that would benefit the university. The opportunity cost is not just the direct costs of running the program, but also the foregone benefits of those alternative uses. Therefore, option C is the correct answer. Option A is incorrect because it only considers the direct costs of running the program. Option B is incorrect because it does not consider the other resources devoted to the shuttle program. Option D is incorrect because while the service may be free to students, there is still an opportunity cost to the university in providing it.

A University Offers a Free Shuttle Service Around Campus