The opportunity cost of making a component part in a factory with no excess capacity is the:
A) Variable manufacturing cost of the component.
B) Fixed manufacturing cost of the component.
C) Total manufacturing cost of the component.
D) Cost of the production given up to manufacture the component.
E) Net benefit foregone from the best alternative use of the capacity required.

Question

Quizplus · Accepted Answer

The opportunity cost is the value of the best alternative forgone, in this case, the net benefit foregone from the best alternative use of the capacity required to make the component. This takes into account not only the manufacturing cost but also the potential benefits that could have been obtained from using the capacity for other purposes. Therefore, the correct answer is E.

The Opportunity Cost of Making a Component Part in a Factory