Madeleine allows herself $100 per month for purchasing coffee. The diagram below illustrates the choices available to her. FIGURE 1- 2
-Refer to Figure 1- 2. If Madeleine chooses to allocate all $100 to buying lattes, we can say that her opportunity cost in one month is
A) zero because she stayed within her budget.
B) 20 cups of regular coffee.
C) 40 cups of regular coffee.
D) zero because she bought what she desired.
E) 80 cups of regular coffee.

Question

Madeleine allows herself $100 per month for purchasing coffee. The diagram below illustrates the choices available to her.  FIGURE 1- 2
-Refer to Figure 1- 2. If Madeleine chooses to allocate all $100 to buying lattes, we can say that her opportunity cost in one month is
A) zero because she stayed within her budget. 
B) 20 cups of regular coffee. 
C) 40 cups of regular coffee. 
D) zero because she bought what she desired. 
E) 80 cups of regular coffee.

Quizplus · Accepted Answer

If Madeleine chooses to allocate all $100 to buying lattes, she could have used that same amount to buy 80 cups of regular coffee ($100 ÷ $1.25 per cup = 80 cups). Therefore, the opportunity cost of choosing lattes is giving up the equivalent of 80 cups of regular coffee. The best choice(s) would be to allocate the money in a way that maximizes Madeleine's satisfaction, based on her preferences and tastes.

Madeleine Allows Herself $100 Per Month for Purchasing Coffee