Elena's aunt gave her $100 for her birthday with the condition that Elena buys herself something. In deciding how to spend the money, Elena narrows her options down to four choices: Option A, Option B, Option C, and Option D. Each option costs $100. Finally, she decides on Option B. The opportunity cost of this decision is

Question

a. the value to Elena of the option she would have chosen had Option B not been available.
b. the value to Elena of Options A, C, and D combined.
c. $100.
d. the average of the values to Elena of Options A, C, and D.

Answer 1

The opportunity cost of a decision is defined as the value of the next best alternative that is forgone when a choice is made. In Elena's case, she had four options but ultimately chose Option B. The opportunity cost, therefore, is the value she places on the best alternative she would have chosen if she hadn't chosen Option B.

Among the choices provided:

a. the value to Elena of the option she would have chosen had Option B not been available.

This option correctly identifies the opportunity cost as the value of the next best alternative.

Thus, the correct answer is:

a. the value to Elena of the option she would have chosen had Option B not been available.