An opportunity cost:
A)Is an unavoidable cost because it remains the same regardless of the alternative chosen.
B)Requires a current outlay of cash.
C)Results from past managerial decisions.
D)Is the potential benefit lost by choosing a specific alternative course of action among two or more.
E)Is irrelevant in decision making because it occurred in the past.

Question

Quizplus · Accepted Answer

Opportunity cost is the potential benefit that is foregone by choosing a specific alternative course of action among two or more. It is the cost of the next best alternative that must be given up in order to pursue a certain action. Therefore, D is the correct answer. The other options are incorrect because A is talking about a sunk cost, B is talking about an explicit cost, C is talking about a historical cost, and E has a wrong premise.

An Opportunity Cost