Which statement about opportunity cost is true?

Which statement about opportunity cost is true?

• A. It is the value of the next best alternative foregone but only in cash terms
• B. It is the accounting cost recorded in the books
• C. It is the cost of capital required for the project
• D. It is the value of the next best alternative foregone

Answer: (D)

Opportunity cost is the value of the next best alternative foregone. When you make a choice, you give up the best alternative you didn’t take, and the benefit you would have gained from that alternative is the opportunity cost of your decision. This includes not just money, but other benefits like time, enjoyment, or other resources that could have been used differently. That’s why it’s broader than cash terms. It’s also different from accounting cost, which is the explicit expense recorded in books, and from the cost of capital, which relates to financing costs rather than the value of forgone alternatives.

Opportunity cost is the value of the next best alternative foregone. When you make a choice, you give up the best alternative you didn’t take, and the benefit you would have gained from that alternative is the opportunity cost of your decision. This includes not just money, but other benefits like time, enjoyment, or other resources that could have been used differently. That’s why it’s broader than cash terms. It’s also different from accounting cost, which is the explicit expense recorded in books, and from the cost of capital, which relates to financing costs rather than the value of forgone alternatives.