Question

Suppose that you are given a \(100 budget at work that can be spent only on two items: staplers and pens. If staplers cost \)10 each and pens cost $2.50 each, then the opportunity cost of purchasing one stapler is

a. 10 pens.

b. 5 pens.

c. zero pens.

d. 4 pens.

Short answer

Option (d): 4 pens

Step-by-step solution

Meaning of opportunity cost

Opportunity cost is the cost incurred on the forgone commodity by the decision-maker. In other words, it is the cost occurred to the consumer on the sacrifice of one good for another.

For example, suppose a farmer decides to cultivate rice instead of potatoes on a piece of land. In that case, the opportunity cost is the loss to the farmer for not choosing potatoes for cultivation.

Estimating the opportunity cost of one stapler

The price of one stapler is $10, and the price of one pen is $2.50. For each unit of the stapler, the consumer will have to sacrifice the purchase of 4 pens.Thus, the opportunity cost of one stapler is 4 pens. Hence, option (c) is correct.