You have three options for the last $4.40 in your pocket: a cappuccino you value at $6.50; a smoothie you value at $7.70, and a frog. (The price of each item is $4.40.) What is the (opportunity) cost, in dollars, of purchasing the frog? (Do NOT enter the $.)

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BlackTom AI · Accepted Answer

First, let's restate the scenario to ensure clarity: you have three options for the last $4.40 in your pocket, each priced at $4.40, and each with a different value to you. The options are a cappuccino valued at $6.50, a smoothie valued at $7.70, and a frog. The question asks for the opportunity cost of purchasing the frog, expressed in dollars (not including the dollar sign).

Key concept: opportunity cost is the value of the best alternative you give up when you make a choice. Here, if you buy the frog, you forego the best-valued alternative among the remaining items.

Option analysis:
- Cappuccino: you value it at $6.50. This is one potential alternative you could have chosen instead of the frog.
- Smoothie: you value it at $7.70. This is the highest-valued alternative among the options.
- Frog: you are choosing this item, which has a price of $4.40 and a value you assign to it (not directly used for the cost calculation).

Why the opportunity cost is 7.70: Because if you spend the $4.40 on the frog, the next best alternative you could have obtained with that money is the smoothie, which you value at $7.70. Since opportunity cost uses the value of the best forgone alternative, 7.70 dollars represents the cost in terms of foregone benefits.

Why not the cappuccino value of 6.50: While $6.50 is also a potential forgone value, it is not the highest-valued forgone alternative. The opportunity cost picks the maximum value among the alternatives you give up, which is 7.70 for the smoothie.

Summary: the opportunity cost of purchasing the frog is the value you would have gained from the best alternative you gave up, which is the smoothie valued at 7.70.

ECO101H1 S LEC0101 topic quiz: thinking like an economist

You have three options for the last $4.40 in your pocket: a cappuccino you value at $6.50; a smoothie you value at $7.70, and a frog. (The price of each item is $4.40.) What is the (opportunity) cost, in dollars, of purchasing the frog? (Do NOT enter the $.)

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ECO101H1 S LEC0101 topic quiz: thinking like an economist

You have three options for the last $4.40 in your pocket: a cappuccino you value at $6.50; a smoothie you value at $7.70, and a frog. (The price of each item is $4.40.) What is the (opportunity) cost, in dollars, of purchasing the frog? (Do NOT enter the $.)

View Explanation

Log in for full answers

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