The value of eliminating the next best alternative forgone when making a choice is called what?

• A. Fixed cost
• B. Sunk cost
• C. Opportunity cost
• D. Marginal cost

Answer: (C)

Opportunity cost is the value of the next best alternative forgone when you make a choice. It captures what you give up in order to pursue a particular option, even if you aren’t paying for it directly. This helps you compare choices using the true cost, not just explicit expenses. For example, choosing to use land for crop A means the opportunity cost is the profit you would have earned from crop B. Similarly, spending time on one activity means the opportunity cost is the benefits you could have gained from the next best use of that time.

Fixed cost is the expense that stays the same regardless of output. A sunk cost is money already spent and not recoverable, so it shouldn’t affect current decisions. Marginal cost is the extra cost of producing one more unit. These definitions show why opportunity cost specifically names the loss of the best alternative when making a choice.