Question

A study analyzed a pharmaceutical​ firm's costs to develop a prescription drug and receive government approval. An article in the Wall Street Journal describing the study noted that included in the​ firm's costs was​ "the return that could be gained if the money​[used to develop the​ drug] were invested​ elsewhere."

​Source: Ed​ Silverman, "Can It Really Cost​ $2.6 Billion to Develop a​ Drug?," Wall Street

Journal​,

November​ 21, 2014.

This return should

A.

not be included in the​ firm's costs because it is not a direct cost of developing and approving the drug.

B.

be included in the​ firm's costs because it is the opportunity cost of not investing those funds elsewhere.

C.

be included in the​ firm's costs because it is a cost of borrowing money.

D.

not be included in the​ firm's costs because not all companies need to borrow to invest.

Answer 1

Option B

It is clear that if this money was not invested in the development of drug but in any other venture, it must have earned a return. Since now this return is lost, it becomes a cost and due to the fact that it is a lost return, it becomes an opportunity cost