The concept of opportunity cost is best described by which of the following statements?

• A. The amount of goods produced when all resources are fully employed.
• B. The total monetary cost of all resources used in production.
• C. The difference between fixed and variable costs in decision making.
• D. The value of the next best alternative forgone when a choice is made.

Answer: (D)

Verified step by step guidance

1. Understand that opportunity cost is a fundamental concept in microeconomics that refers to the value of the next best alternative that must be given up when making a decision.
2. Recognize that opportunity cost is not about total production, total monetary costs, or cost classifications like fixed and variable costs, but rather about what you sacrifice when choosing one option over another.
3. Identify that the correct description of opportunity cost is the value of the next best alternative forgone when a choice is made, emphasizing the trade-offs involved in decision making.
4. Relate this concept to real-life examples, such as choosing to spend time studying instead of working, where the opportunity cost is the income foregone from not working.
5. Summarize that opportunity cost helps individuals and firms make informed decisions by considering what they must give up to pursue a particular action.