Assume your firm has an unused machine that originally cost $75,000, has a book value of $20,000, and a market value of $25,000. Ignoring taxes, what is the opportunity cost of this machine?
A) $75,000
B) $25,000
C) $20,000
D)$5,000

Question

Quizplus · Accepted Answer

The opportunity cost is the value of the highest valued alternative that must be given up to use the machine. In this case, the market value of the machine is the highest valued alternative, so the opportunity cost is $25,000. The original cost and book value are irrelevant in determining opportunity cost.

Assume Your Firm Has an Unused Machine That Originally Cost