The value of a resource in its next best use is called what?

The value of a resource in its next best use is called what?

• A. Opportunity cost
• B. Sunk cost
• C. Marginal cost
• D. Fixed cost

Answer: (A)

Opportunity cost is the value of the next best use you forgo when you allocate a resource to one purpose. When you put a resource like land, time, or capital to a particular use, you miss out on its best alternative, and that foregone benefit is the opportunity cost. It’s not the money already spent (that’s a sunk cost), and it’s not the cost of producing one more unit (that’s marginal cost), nor is it a fixed expense that stays the same regardless of activity (that’s a fixed cost). For example, if you plant corn on a field, the opportunity cost is the profit you would have earned by planting the next-best crop, say soybeans, instead.

Opportunity cost is the value of the next best use you forgo when you allocate a resource to one purpose. When you put a resource like land, time, or capital to a particular use, you miss out on its best alternative, and that foregone benefit is the opportunity cost. It’s not the money already spent (that’s a sunk cost), and it’s not the cost of producing one more unit (that’s marginal cost), nor is it a fixed expense that stays the same regardless of activity (that’s a fixed cost). For example, if you plant corn on a field, the opportunity cost is the profit you would have earned by planting the next-best crop, say soybeans, instead.