Opportunity cost is defined as the value of the next best alternative forgone.

• A. The cost of goods sold
• B. The sale price of the item
• C. The value of the next best alternative forgone
• D. The depreciation expense

Answer: (C)

Opportunity cost is the value of the next best alternative forgone. When you make a choice, you give up the option you could have chosen instead, and the value of that forgone option is your opportunity cost. For example, if you spend an hour studying instead of taking a part-time job, the opportunity cost is the wage you could have earned during that hour. In business decisions, choosing one project means giving up the potential profits from the next best alternative project. The other terms listed are different kinds of costs—cost of goods sold, sale price, and depreciation are accounting or revenue concepts, not the value of what you gave up by choosing one option over another.