In business decision-making, what is the opportunity cost?

• A. The total cost of the chosen option
• B. The value of the next best alternative forgone
• C. The accounting profit from the project
• D. The fixed cost not affected by the decision

Answer: (B)

When a decision is made, opportunity cost is the value of the next best alternative that is forgone. It captures what you give up in terms of potential benefits by not choosing that alternative. This helps compare options beyond just the explicit spending. It’s not the total cost of the chosen option, nor the accounting profit from the project, nor a fixed cost that stays the same regardless of the choice. For example, if a business uses £50,000 to fund one project, the opportunity cost is the expected profit or benefits that could have been earned from the best alternative project that wasn’t chosen.