Question

PROBLEM SET H3 (S-F-19 Name: Date: Total: 100 POINTS (4 points each) 1) The opportunity cost of something is A) the cost of the labor used to produce it. B) what you sacrifice to get it. price charged for it D) the search cost required to find it 2) The principle of opportunity cost A) is more relevant for firms than for individuals. B) only refers to monetary payments. C) is only relevant in economics. D) is applicable to all decision-making. 3) The A) marginal principle. principle that the cost of something is equal to what is sacrificed to get it is known as the C) principle of diminishing returns. D) reality principle. 4) The saying that "There's no such thing as a free lunch" refers to the A) marginal principle. B) spillover principle. C) principle of opportunity cost D) reality principle. 5) Jacinda quit her job as a blackjack dealer where she made $42,000 per year to start her own florist business. Her business expenses are $14,000 per year on rent, $21,000 per year on supplies, and $9,000 per year on part time help. As for her personal expenses, her apartment costs her S12,000 per year and her personal bills are an extra $6,000 per year. What is Jacinda's opportunity cost of running the business? A) $104,000 B) $86,000 C) $62,000 D) $44,000 6) An unemployed individual decides to spend the day fishing. The opportunity cost of fishing is A) the cost of bait and any other monetary expenses. B) zero, because the person doesn't have a job. C) the cost of bait, any other monetary expenses, and the value of the individual's wages while he D) the cost of bait, any other monetary expenses, and the value of the best alternative use of the individual's time. was working.

Answer 1

Opportunity Cost

As per Prof. Lionel Robbins " Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses".

The crux of economics is dilemma: Resources are scarce and wants are unlimited. Consequently, while deciding to opt for a particular choice, we have to sacrifice other choice. For Instance, a particular fruit can be used to make either 1 kg of beer or 1 kg of juice. If we decide to produce beer, we have to sacrifice the want of 1 kg of juice. Here comes the role of Opportunity cost.

What is Opportunity Cost?

Opportunity cost is the cost of the next best alternative.

In other words, Opportunity cost is the value that must be sacrificed to acquire or achieve something.

Question 1: Answer is option B (what you sacrifice to get it). Option A is not possible since opportunity cost is not restricted to labour cost. Option C and Option D are not relevant.

Question 2: Answer is Option D (is applicable to all decision making). Option C and Option D are closer. But option C (only relevant in economics) is incomplete answer. Option A and B are narrow answers.

Question 3: Answer is option B. Option D (Reality Principle) is associated with value of product (purchasing power) relative to other goods. Option A and Option B are clearly out of context.

Question 4: Answer is C (Principle of Opportunity cost). The above phrase means you don't get something for nothing.

Question 5: Answer is option D ($44,000). The personal expenses will not be included in opportunity cost since they would have been incurred even if Jacinda would continue with job.