Assertion (A): If you invest Rs 1,000 in your family business, its opportunity cost is the total interest you could have earned from all the banks open to you.
Reason (R): The opportunity cost of an activity is the gain foregone from the second best activity.
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A) is false but (R) is true.
Opportunity cost is the gain from the second best activity only. The money can go to one place at a time, so the gains from all the other choices are not added up.
Assertion (A): If you invest Rs 1,000 in your family business, its opportunity cost is the total interest you could have earned from all the banks open to you. — False. The Rs 1,000 could earn 10 per cent in bank-1 or 5 per cent in bank-2, but not both. The best of these is bank-1, so the opportunity cost is the interest from bank-1 alone.
Reason (R): The opportunity cost of an activity is the gain foregone from the second best activity. — True. This is what opportunity cost means. Here the family business is the chosen activity and bank-1 is the second best.
NCERT (2026-27): “Opportunity cost In economics, one often encounters the concept of opportunity cost. Opportunity cost of some activity is the gain foregone from the second best activity. Suppose you have Rs 1,000 which you decide to invest in your family business. … If you do not invest this money, you can either keep it in the house-safe which will give you zero return or you can deposit it in either bank-1 or bank-2 in which case you get an interest at the rate of 10 per cent or 5 per cent respectively. So the maximum benefit that you may get from other alternative activities is the interest from the bank-1. But this opportunity will no longer be there once you invest the money in your family business. The opportunity cost of investing the money in your family business is therefore the amount of forgone interest from the bank-1.” |