The Stogie Shop, a cigar store in the mall, sells hand-rolled cigars for $10.00 and machine-made cigars for $2.50 each. What is the opportunity cost of buying a hand-rolled cigar?
A) 4 machine-made cigars
B) 1/4 of a machine-made cigar
C) $10.00
D) $2.50

Question

Quizplus · Accepted Answer

The opportunity cost of buying a hand-rolled cigar is the value of the next best alternative that could have been chosen instead. In this case, the next best alternative is the machine-made cigar, which costs $2.50 each. Therefore, the opportunity cost of buying a hand-rolled cigar is $2.50. To buy a hand-rolled cigar, one has to give up the opportunity to buy a machine-made cigar for $2.50. As such, the answer is A, which represents 4 machine-made cigars.

The Stogie Shop, a Cigar Store in the Mall, Sells