Altex Inc manufactures two products. Which of the following best describes the opportunity cost of producing more of Product A?

• A. The profit earned from selling Product A.
• B. The fixed costs associated with manufacturing Product A.
• C. The amount of Product B that must be forgone to produce an additional unit of Product A.
• D. The total cost of producing both products together.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of opportunity cost in microeconomics. Opportunity cost refers to the value of the next best alternative that must be given up when making a choice.
2. Step 2: Identify the alternatives involved in the production decision. Here, the firm produces two products: Product A and Product B.
3. Step 3: Recognize that producing more of Product A means resources are diverted from producing Product B, since resources are limited.
4. Step 4: Define the opportunity cost of producing an additional unit of Product A as the amount of Product B that must be forgone (not produced) to allocate resources to Product A instead.
5. Step 5: Note that profit, fixed costs, or total costs do not directly represent opportunity cost; rather, opportunity cost focuses on the trade-off between the quantities of the two products produced.