Question

Barb’s aunt gave her $100 for her birthday with the condition that Barb buy herself something. In deciding how to spend the money, Barb narrows her options down to four choices: Option A, Option B, Option C, and Option D. Each option costs $100. Finally she decides on Option B. The opportunity cost of this decision is

a. the value to Barb of Options A, C and D combined.
b. $100.
c. the average of the values to Barb of Options A, C, and D.
d. the value to Barb of the option she would have chosen had Option B not been available.

Answer 1

The correct answer is option d.

Step-by-step explanation:

Barb’s aunt gave her $100 for her birthday with the condition that Barb buys herself something.

Barb narrows her options down to four choices: Option A, Option B, Option C, and Option D.

The cost of each option is $100.

She finally decides to go for option B.

In this situation, her opportunity cost for choosing option B will be the second-best alternative or the value of the option she would have chosen had Option B not been available.

Opportunity cost of an economic decision is the the cost of second best alternative that the person has to give up in the process of making decision.