The economic concept of opportunity cost refers to the value of the next best alternative foregone when a decision is made. Let's analyze each situation to determine which one best illustrates opportunity cost:
A. A business spends money on new computers, so it can't afford new office furniture.
- This situation demonstrates opportunity cost because by choosing to invest in new computers, the business is giving up the opportunity to purchase new office furniture. The cost of the computers is the foregone opportunity to buy the furniture.
B. A business invests in finding new customers rather than rewarding current customers.
- In this case, the opportunity cost is represented by the foregone opportunity to reward current customers. By choosing to focus on acquiring new customers, the business sacrifices the opportunity to strengthen relationships with existing ones.
C. A business plans to invest all of its profits back into the company to keep growing.
- While reinvesting profits is a strategic decision for growth, it does not explicitly illustrate opportunity cost unless there is a specific alternative use for the profits that are being foregone. Without a clear comparison to a specific alternative, the concept of opportunity cost is less apparent in this scenario.
D. A business looks for workers overseas, so it has to hire a multilingual staff.
- This situation showcases opportunity cost as the business has to incur the cost of hiring multilingual staff due to the decision to look for workers overseas. The alternative use of resources, such as hiring local workers who do not require language skills, represents the opportunity cost.
Therefore, the situation that best illustrates the economic concept of opportunity cost is:
A. A business spends money on new computers, so it can't afford new office furniture.
This scenario clearly shows the trade-off involved when deciding to allocate resources to one option over another, highlighting the concept of opportunity cost in economic decision-making.
