Under the opportunity cost approach, the cost of each alternative includes the incremental costs and the opportunity cost.

Question

Quizplus · Accepted Answer

The opportunity cost approach takes into account the next best alternative foregone while making a decision. This means that the cost of each alternative includes not only the incremental (direct) costs but also the opportunity cost, i.e., the benefits that could have been derived from the next best alternative. Hence, option A is correct.

Under the Opportunity Cost Approach, the Cost of Each Alternative