QUESTION You decide to purchase a new car for 12000 Upon dri

QUESTION You decide to purchase a new car for $12.000. Upon driving the car off of the lot, the resale value of the car falls to $9,000 The opportunity cost of purchasing the car is and the opportunity cost of using the car is A) $12,000 and $9,000 B) $12,000 and $3,000 C) Unknown and $9,000 D) Unknown and $3,000 TTT ? Paragraph ? Arial 3(12pt) ??·-·T·? \'

Solution

Correct option is (D).

Opportunity cost (OC) is the benefit foregone by choosing one alternative over another. This is an implicit cost. In this case question does not state any alternatives that were sacrificed because the car was purchased (the $12,000 purchase price is an accounting cost that has actually been incurred and paid, and not an OC). Therefore OC of purchase is unknown.

However, if the car were not used, its value would have remained $12,000, but use of it has decreased the value to $9,000. Therefore, OC f using the care is $(12,000 - 9,000) = $3,000.