The Specialty T-shirt Company is now operating at capacity. It is considering taking in a special order to make 5,000 "Spring Break" T-shirts, which it can sell at $30 each. If it makes these shirts, it will have to make 5,000 fewer regular T-shirts, which sell at $10 each. The reduction in revenue due to making fewer regular t-shirts is an example of
A) Opportunity cost
B) Sunk cost
C) Outlay cost
D) Irrelevant cost

Question

Quizplus · Accepted Answer

The reduction in revenue of making fewer regular T-shirts is the opportunity cost of making the Spring Break T-shirts. Opportunity cost represents the value of the next best alternative forgone. In this case, the company is giving up the revenue it could have earned by selling regular T-shirts to make the Spring Break T-shirts. The other options (B, C, D) do not accurately describe the situation.

The Specialty T-Shirt Company Is Now Operating at Capacity