Question

John gave Margaret a? $20,000 painting for her birthday. Last? week, an art dealer offered to buy the painting from Margaret for? $25,000. Margaret said no. The opportunity cost of her decision is

A. ?$45,000.
B. ?$20,000.
C. ?$5,000.
D. ?$0.
E. ?$25,000.

Answer 1

The opportunity cost of Margaret's decision to keep the painting instead of selling it to the art dealer for $25,000 is $5,000. This is the forgone profit she could have realized by selling the painting, representing the value of the next best alternative.

Step-by-step explanation:

The question is related to the concept of opportunity cost, which is a fundamental idea in economics. Opportunity cost is the value of the next best alternative that you give up when making a decision. In the scenario described, when Margaret decided to keep the painting despite the art dealer's offer of $25,000, her opportunity cost is the amount of money she could have gained by selling the painting. Therefore, the opportunity cost of her decision is the difference between the value of the painting now ($25,000) and the value at which she received the painting as a gift ($20,000), which is $5,000.