1.Administrative costs allocated by headquarters to its business units
2.A company’s policy to expense all assets costing less than 0
3.The income you give up when you enroll full-time in university
4.The weighted-average replacement cost of an item over the past year
Which of the following is the best example of an opportunity cost?
Wednesday, July 20th, 2011 at
09:05 pm
3
3.
Def.
1. The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.
2. The difference in return between a chosen investment and one that is necessarily passed up. Say you invest in a stock and it returns a paltry 2% over the year. In placing your money in the stock, you gave up the opportunity of another investment – say, a risk-free government bond yielding 6%. In this situation, your opportunity costs are 4% (6% – 2%).
The opportunity cost of going to college is the money you would have earned if you worked instead. On the one hand, you lose four years of salary while getting your degree; on the other hand, you hope to earn more during your career, thanks to your education, to offset the lost wages.