In the context of scarcity and choice, opportunity cost is calculated by which of the following?

• A. The sum of all possible alternatives that could have been chosen
• B. The value of the next-best alternative that must be given up when a choice is made
• C. The difference between total benefits and total costs of the chosen option
• D. The total monetary price paid for the chosen option only

Answer: (B)

Verified step by step guidance

1. Understand the concept of opportunity cost: it represents the value of the next-best alternative that is foregone when a choice is made, not the sum of all alternatives or just monetary costs.
2. Recognize that opportunity cost is not the difference between total benefits and total costs, but specifically the value of what you give up by not choosing the next best option.
3. Identify that opportunity cost focuses on the next-best alternative, meaning the single most valuable option you sacrifice, rather than all possible alternatives combined.
4. Note that the total monetary price paid for the chosen option is a cost, but opportunity cost includes non-monetary factors and is about what you miss out on by making a choice.
5. Conclude that the correct calculation of opportunity cost is the value of the next-best alternative that must be given up when a choice is made.