In the context of scarcity and choice, what factors into the opportunity cost of a decision?

• A. All past expenditures (sunk costs) related to the decision, regardless of whether they can be recovered
• B. The total value of all alternatives available, added together, even though only one can be chosen
• C. The value of the next-best alternative forgone as a result of making the choice
• D. Only the direct monetary price paid for the chosen option, excluding any non-monetary trade-offs

Answer: (C)

Verified step by step guidance

1. Understand the concept of opportunity cost: it represents the value of the next-best alternative that must be forgone when making a choice.
2. Recognize that sunk costs, or past expenditures that cannot be recovered, should not factor into opportunity cost because they do not affect current or future decisions.
3. Identify that opportunity cost is not the sum of all possible alternatives, but specifically the value of the single best alternative that is given up.
4. Acknowledge that opportunity cost includes both monetary and non-monetary trade-offs, not just the direct price paid for the chosen option.
5. Conclude that the correct measure of opportunity cost is the value of the next-best alternative forgone as a result of making the choice.