Question

Lisa is choosing between three alternatives:

Answer 1

Opportunity cost is something you gave up to do the other thing you want to do. This is basically the loss of potential gain you can have on a certain alternative because of choosing the other alternative. In this problem, the opportunity cost of writing the term paper is $140 dollars. This can be break-down as follows: 

a. $60 opportunity cost she has given up for not working on her job 

b. $80 opportunity cost she has given up for not going out with a friend

Answer 2

Answer:

The correct answer is:  $100 (dollars).

Explanation:

Opportunity cost is what a person sacrifices when they choose one option over others. It represents the difference between the choice that was taken and the options that were left on the table. Its formula is:

Opportunity Cost = FO - CO

• FO = Return on best foregone option
• CO = Return on chosen option

In the case, if Lisa chooses to write the term paper:

• FO = Working on her job + Going out with a friend
• FO = $60 + $ 80
• FO = $140

• CO = Writing the term paper
• CO = $40

• Opportunity cost = FO - CO
• Opportunity cost = $140 - $40
• Opportunity cost = $100

So, the opportunity cost of writing the term paper is $100.