Exhibit 21-7

-John purchases a baseball card for $10 that turns out to be so rare that a collector offers to buy it from him for $2,000. Instead, John decides to give the card to his sister (an avid baseball-card collector) as a birthday present. The opportunity cost of John's generosity is
A)$10, the purchase price.
B)$0, because at the time the decision is made, $10 are sunk cost, i.e., at that point there is no cost to John of giving the card away.
C)$2,000, the amount offered by the collector.
D)$1,005, the average of $10 and $2,000.

Question

Exhibit 21-7
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-John purchases a baseball card for $10 that turns out to be so rare that a collector offers to buy it from him for $2,000. Instead, John decides to give the card to his sister (an avid baseball-card collector) as a birthday present. The opportunity cost of John's generosity is
A)$10, the purchase price. 
B)$0, because at the time the decision is made, $10 are sunk cost, i.e., at that point there is no cost to John of giving the card away. 
C)$2,000, the amount offered by the collector. 
D)$1,005, the average of $10 and $2,000.

Quizplus · Accepted Answer

The opportunity cost of John's decision is $2,000, the amount he could have received from the collector by selling the rare baseball card instead of giving it away. Opportunity cost refers to the value of the next best alternative foregone, which in this case is the $2,000 offer.

Exhibit 21-7 ​

Exhibit 21-7