Suppose you have 1000 rupees which you can invest in your family business. Apart from this, you can also deposit in a bank giving 7% p.a. interest or in a bond giving 10 % p.a interest. You decided to invest it in family business. What will be the opportunity cost?
Answer & explanation
Correct answer: option 2
The correct answer is Option 2: 100 rupees
Opportunity Cost is the value of the next best alternative foregone when making a choice.
In this case, you had three options for investing ₹1000:
- Invest in family business (chosen option).
- Deposit in a bank (7% p.a. interest → earns ₹70).
- Invest in a bond (10% p.a. interest → earns ₹100).
Since you chose to invest in the family business, the best alternative foregone is the bond, which would have given you ₹100 in interest.
Thus, the opportunity cost is ₹100.