CA Foundation · Business Economics · Nature and Scope of Business Economics
Bharat Foods Ltd. has ₹10,00,000 available and can invest it in Plant A or Plant B. Plant A gives an added return of ₹1,20,000 per year and Plant B gives ₹1,05,000 per year. Plant A is chosen. In economic terms, the opportunity cost of choosing Plant A is:
The opportunity cost is ₹1,05,000, the return from Plant B. Opportunity cost is the value of the best alternative given up when a choice is made, so the forgone Plant B return is the cost of choosing Plant A.
- A₹1,20,000
- B₹10,00,000
- C₹15,000
- D₹1,05,000Correct
Explanation
Opportunity cost is the value of the next best alternative forgone. By choosing Plant A, the firm gives up Plant B's return of ₹1,05,000. The figure ₹15,000 is the net gain over the alternative, not the cost, and ₹1,20,000 is the return from the chosen option.
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