Question

Jason is a portfolio manager at a private investment company. He finds three very lucrative investments. They are oil contracts, construction contracts and an Initial Public Offering of a company's stock. What is the opportunity cost if Jason invests all of the money with the construction contracts?

Answer 1

Answer: The Oil contracts and the Initial Public Offering of a company's stock.

Explanation:

The Opportunity Cost of an investment refers to the next best alternative that was given up in order to invest in the opportunity that was invested in.

Jason invests all his money into construction contracts and nothing into Oil or the IPO. This will cost him whatever gains he would have accrued from the other investments had he gone into them. That cost is the opportunity cost.