You own a building that has four possible uses: a cafe, a craft store, a hardware store, and a bookstore. The value of the building in each use is $2,000; $3,000; $4,000; and $5,000, respectively. You decide to open a hardware store. The opportunity cost of using this building for a hardware store is
A) $2,000, the value if the building is used as a cafe.
B) $3,000, the value if the building is used as a craft store.
C) $10,000, the sum of the values if the building is used for a cafe, a craft store, or a bookstore.
D) $1,000, the difference in value if the building was used as a bookstore and its actual use.

Question

Quizplus · Accepted Answer

The opportunity cost is the value of the next best alternative foregone, which in this case is the bookstore valued at $5,000. The hardware store is valued at $4,000, so the opportunity cost is $5,000 - $4,000 = $1,000.

You Own a Building That Has Four Possible Uses: a Cafe