Which term describes the cost of forgoing the next best alternative when choosing to invest in new technology?

Which term describes the cost of forgoing the next best alternative when choosing to invest in new technology?

• A. Incremental revenue
• B. Sunk cost
• C. Opportunity cost
• D. Accounting profit

Answer: (C)

Opportunity cost is the value of the best alternative you give up when you choose to invest in new technology. By committing resources to this upgrade, you forego other uses—such as a different project or another way to use the capital—that could have yielded benefits. The forgone benefit from that next-best option is the opportunity cost. Incremental revenue describes the extra revenue the new technology generates, not the value you sacrifice by not pursuing alternatives. A sunk cost is money already spent and should not influence current decisions. Accounting profit is a financial measure of profit that doesn’t capture the value of what you forgo by not pursuing other options.

Opportunity cost is the value of the best alternative you give up when you choose to invest in new technology. By committing resources to this upgrade, you forego other uses—such as a different project or another way to use the capital—that could have yielded benefits. The forgone benefit from that next-best option is the opportunity cost.

Incremental revenue describes the extra revenue the new technology generates, not the value you sacrifice by not pursuing alternatives. A sunk cost is money already spent and should not influence current decisions. Accounting profit is a financial measure of profit that doesn’t capture the value of what you forgo by not pursuing other options.