Microeconomics: Principles, Problems, & Policies, 20th Edition

Published by McGraw-Hill Education
ISBN 10: 0077660811
ISBN 13: 978-0-07766-081-9

Chapter 1 - Limits, Alternatives, and Choices - Discussion Questions: 1

Answer

Opportunity cost is the cost of the next best alternative that has to be sacrificed to perform a certain action.

Work Step by Step

Suppose you have a block of land and you can either rent it to an industry owner or to a real estate builder. Suppose, the builder pays an amount of \$10,000 and the industry owner pays and amount of \$8,000, then if you choose to give the land to the builder for \$10,000, the opportunity cost will be \$8,000. You gave up \$8000 because \$10,000 is best for you. After \$10,000, the next best alternative available for you is $8,000. therefore forgoing \$8,000 is your opportunity cost.
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