Define opportunity cost and provide an example.

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Q. Define opportunity cost and provide an example.

Puducherry TnboardTamil Nadu HSC First Year (DGE) Commerce Board 2023Subjective· 3mImportance★★★★★

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Opportunity cost is the value of the next best alternative given up when a choice is made; e.g., land used for wheat has the foregone rice crop as its opportunity cost.

In the Tamil Nadu HSC Class-11 Economics syllabus, opportunity cost follows directly from scarcity and choice.

Definition. Since resources are limited and have alternative uses, using them for one purpose means giving up other purposes. The opportunity cost of a decision is the value of the next best alternative sacrificed (foregone) in making that choice. It is also called alternative cost or transfer cost.

Example.

A farmer owns one hectare of land. He can grow either wheat or rice. If he chooses to grow wheat, the rice he could have produced on that land is foregone — that foregone rice output is the opportunity cost of growing wheat. …

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Same / Similar Concept — real previous-year questions on the same or a closely similar concept, not this exact question.

CA Foundation 2026Set jan-20261 markMCQ
$Q. Which of the following is NOT a correct statement regarding opportunity cost? (A) Is always recorded in the books of account (B) Relates to sacrificed alternatives (C) Represents the value of foregone opportunity (D) Is a useful concept in long-term cost calculations$
›Reveal solutionSolution
Opportunity cost is the sacrificed value of the best foregone alternative — an implicit concept that is NOT recorded in the accounting books.

Concept

Opportunity cost is what you give up when you choose one option over the next-best one. It guides economic decision-making but, because no actual money changes hands for the foregone choice, it does not appear in financial records.

Evaluating the statements

(A) 'Always recorded in the books of account' — FALSE. Opportunity cost is an implicit/notional cost, so it is not booked. This is the statement the question asks for.

(B) 'Relates to sacrificed alternatives' — TRUE.

(C) 'Represents the value of foregone opportunity' — TRUE.

(D) 'Useful in long-term cost calculations' — TRUE (it aids resource-allocation and planning decisions). …
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CA Foundation 2025Set may-20251 markMCQ
$Q. Suppose that a sole proprietor is earning total revenue of ₹ 120,000/- and is incurring explicit cost of ₹ 95,000/-. If the owner could work for another company for ₹ 30,000/- a year, which of the following statement is false ? (A) The firm incurred an economic loss of ₹ 5,000/- (B) The firm is having accounting profit of ₹ 25,000/- (C) Total economic costs are ₹ 30,000/- (D) The total accounting costs are ₹ 95,000/-$
›Reveal solutionSolution
Economic cost = explicit ₹95,000 + implicit ₹30,000 = ₹1,25,000 (not ₹30,000), so statement (C) is FALSE.

Step 1 — List the data

Total revenue: $TR = ₹1,20,000$

Explicit (accounting) cost: $₹95,000$

Implicit cost = owner's foregone salary elsewhere: $₹30,000$

Step 2 — Accounting profit
$\text{Accounting profit} = TR - \text{Explicit cost} = 1{,}20{,}000 - 95{,}000 = ₹25{,}000$
Step 3 — Economic cost and economic profit
$\text{Economic cost} = \text{Explicit} + \text{Implicit} = 95{,}000 + 30{,}000 = ₹1{,}25{,}000$ $\text{Economic profit} = TR - \text{Economic cost} = 1{,}20{,}000 - 1{,}25{,}000 = -₹5{,}000\;(\text{a loss})$
Step 4 — Test each statement

(A) Economic loss of ₹5,000 — TRUE (Step 3).

(B) Accounting profit ₹25,000 — TRUE (Step 2).

(C) Total economic costs are ₹30,000 — FALSE: economic cost is ₹1,25,000; ₹30,000 is only the IMPLICIT portion.

(D) Total accounting costs are ₹95,000 — TRUE (the explicit cost). …
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Q.Define opportunity cost and provide an example.

Concept understanding — Opportunity Cost

Why it matters

Link to the Production Possibility Curve

Quick example

Concept

Evaluating the statements

Step 1 — List the data

Step 2 — Accounting profit

Step 3 — Economic cost and economic profit

Step 4 — Test each statement

Q.Define opportunity cost and provide an example.

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