Paul receives $300 as a birthday gift. In deciding how to spend the money, he narrows his options down to four choices, Option A, Option B, Option C, and Option D. Each option costs $200. Finally he decides on Option B. What is the opportunity cost of Option B?

Question

Quizplus · Accepted Answer

The opportunity cost of Option B is the value of the best alternative that he could have chosen if he had not chosen Option B. This means that the answer is not C or D because they are just the actual cost of the option. Option A represents the value of the next best choice that he did not select, making it the correct answer. Option B is the choice that Paul actually made, so it cannot be the opportunity cost. Option C is the initial amount he received, but not the opportunity cost of choosing Option B. Option D is just the actual cost of Option B.

Paul Receives $300 as a Birthday Gift