Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates
A) distorted priorities.
B) opportunity costs.
C) increasing opportunity costs.
D) productive efficiency.

Question

Quizplus · Accepted Answer

This example illustrates the concept of opportunity costs, as the university had to forego an option (expanding parking for students) to pursue another option (upgrading computers and scientific equipment for faculty). The cost of this decision is measured by the value of the next best alternative that had to be given up, which is the expansion of parking for students. Therefore, the opportunity cost of the upgrade is $1 million in parking. This implies that the university could have chosen to maximize the benefits to students if they went ahead with the expansion of parking.

Suppose That a University Decides to Spend $1 Million to Upgrade