Understanding Opportunity Costs
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Questions and Answers

What is the definition of opportunity cost?

  • The average cost of several investment options
  • The guaranteed return from a particular investment
  • The benefit lost when one alternative is chosen over another (correct)
  • The total cost incurred by an investor in a project

    • Which of the following scenarios best exemplifies opportunity cost?

  • An individual spends their savings on a vacation rather than investing it. (correct)
  • A student selects a major that does not offer many job opportunities.
  • An investor decides to put $1000 into stocks instead of savings, losing interest income. (correct)
  • A business allocates funds for marketing instead of product development, resulting in lower sales. (correct)

    • Which situation does NOT illustrate opportunity cost?

  • Buying a new car instead of a used one, leading to higher ongoing costs.
  • Choosing to work overtime instead of spending time with family.
  • Forgetting to renew a subscription and losing access to services. (correct)
  • Investing in renewable energy over fossil fuels due to ethical considerations.

    • In business decisions, what is often considered when assessing opportunity costs?

    <p>The potential revenue from the chosen and foregone alternatives</p> Signup and view all the answers

    How can opportunity costs influence decision-making for an investor?

    <p>By highlighting the possible losses from foregone alternatives</p> Signup and view all the answers

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