Question

A computer hardware specialist has a hard drive which cost​ £220 to purchase. This can either be sold for​ £300 or used to upgrade a computer currently held in inventories thereby increasing that​ computer's sales value by​ £350 (but incurring additional labour charges of​ £80). Alternatively, the hard drive could be used to repair a​ customer's computer. What is the opportunity cost of using the hard drive to repair the​ customer's computer?

A. £200
B. £300
C. £80
D. £150

Answer 1

The opportunity cost of using the hard drive to repair the customer's computer is £270, which is the net gain from the best alternative use, upgrading another computer.

Step-by-step explanation:

The opportunity cost of using the hard drive to repair the customer's computer is the benefit forgone by not choosing the next best alternative. In this scenario, the hard drive can be sold for £300 or used to upgrade another computer, adding £350 to its value minus labor charges of £80; thus, the net gain from upgrading is £270 (£350 - £80). The best financial alternative is upgrading, which has a higher benefit than selling. Therefore, the opportunity cost of using the hard drive for repairs is the net gain from upgrading, which is £270.