The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is:
A) the variable manufacturing cost of the component.
B) the total manufacturing cost of the component.
C) the fixed manufacturing cost of the component.
D) zero.

Question

Quizplus · Accepted Answer

The opportunity cost is the cost of the next best alternative foregone. In this scenario, since there is no alternative use for the excess capacity, there is no next best alternative and therefore the opportunity cost is zero.

The Opportunity Cost of Making a Component Part in a Factory