MCQ Question 1: Opportunity cost occurs because of a producer’s need to:
A) Maximize profits
B) Produce goods and services
C) Allocate scarce resources
D) Meet consumer demand
Answer: C) Allocate scarce resources
Opportunity cost is the cost of forgoing one option to choose another. In the context of a producer, opportunity cost occurs because of the need to allocate scarce resources. Scarce resources, such as labor, capital, and natural resources, are limited in supply relative to the demand for them.
As a result, producers must make choices about how to allocate these resources among different production options, and by choosing one option, they forgo the benefits of the next best alternative.
While maximizing profits and meeting consumer demand are important considerations for a producer, the fundamental driver of opportunity cost is the need to allocate scarce resources. Therefore, the correct answer is C) Allocate scarce resources.
MCQ Question 2: Opportunity cost is also known as:
A) Alternative cost
B) Explicit cost
C) Accounting cost
D) Marginal cost
Answer: A) Alternative cost
Opportunity cost is often referred to as alternative cost because it represents the value of the next best alternative that is foregone when a choice is made. It is the cost of choosing one option over another and encompasses the benefits or opportunities that could have been gained by choosing the alternative. While explicit cost, accounting cost, and marginal cost are all important concepts in economics, they are not synonymous with opportunity cost.
MCQ Question 3:
A) The cost of the next best alternative is foregone
B) The actual payments made by a firm for the resources it uses in the production
C) The total cost of production, including both explicit and implicit costs
D) The additional cost incurred by producing one more unit of a good or service
The correct answer is A) The cost of the next best alternative is foregone.
Opportunity cost refers to the value of the best alternative that is sacrificed or foregone when a particular choice is made. It represents the benefits, opportunities, or values that could have been obtained by choosing a different option. In other words, it is the cost of forgoing the next best alternative.
Option B, “The actual payments made by a firm for the resources it uses in the production,” refers to explicit costs, which are the direct monetary expenses incurred by a firm in acquiring resources for production.
Option C, “The total cost of production, including both explicit and implicit costs,” refers to the concept of total cost, which considers both the monetary costs (explicit costs) and the opportunity costs (implicit costs) associated with production.
Option D, “The additional cost incurred by producing one more unit of a good or service,” refers to marginal cost, which represents the change in total cost resulting from the production of an additional unit of a good or service.
Therefore, the most accurate definition of opportunity cost is that it represents the cost of the next best alternative foregone.