You have 1000 Rs and you decided to investing family business rather than depositing it in a bank where you can get the interest of 5%. What is the amount of foregone interest from the bank called in terms of cost ?
Answer & explanation
Correct answer: option 1
The correct answer is Option 1: opportunity cost
- Opportunity cost refers to the value of the next best alternative foregone when making a choice.
- In this case, by investing Rs. 1000 in the family business, you forgo the Rs. 50 interest you could have earned from the bank.
- This lost interest is the opportunity cost of your decision.