Question

Jason is a portfolio manager at a private investment company. He finds three very lucrative investments. They are oil contracts, construction contracts and an Initial Public Offering of a company's stock. What is the opportunity cost if Jason invests all of the money with the construction contracts?

Answer 1

The opportunity cost for Jason investing in construction contracts is the potential earnings from the other investments he didn't choose, such as oil contracts or an IPO.

Step-by-step explanation:

The opportunity cost for Jason, if he invests all of the money with the construction contracts, is the foregone profits he could have earned from investing in the oil contracts or the Initial Public Offering (IPO) of a company's stock.

These missed potential earnings represent the opportunity cost because they are the next best alternatives that he has to give up in order to invest in the construction contracts. In economics, the concept of opportunity cost emphasizes that every decision has a trade-off and the cost of a chosen investment is the value of the best alternative that was not selected.

Answer 2

Answer: The Oil contracts and the Initial Public Offering of a company's stock.

Step-by-step explanation:

The Opportunity Cost of an investment refers to the next best alternative that was given up in order to invest in the opportunity that was invested in.

Jason invests all his money into construction contracts and nothing into Oil or the IPO. This will cost him whatever gains he would have accrued from the other investments had he gone into them. That cost is the opportunity cost.