CA Foundation · Business Economics · Nature and Scope of Business Economics
A government decides to use a plot of land for building a metro depot rather than a public park. In deciding this, the question of 'what to produce' is solved by considering that:
Since land is scarce and has alternative uses, using it for the metro depot means sacrificing the park. The forgone park is the opportunity cost. This choice among competing uses of limited resources is the essence of the 'what to produce' problem.
- AThe park will be built later at zero cost
- BLand has alternative uses, so choosing the depot means giving up the park as the opportunity costCorrect
- CLand is a free resource and has no cost
- DThe depot and the park can both be built on the same plot without sacrifice
Explanation
Because resources are scarce and have alternative uses, choosing one use means sacrificing the next best alternative. The forgone park is the opportunity cost of the metro depot. Land is not free, and both uses cannot be fully achieved on one plot.
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