1. Deirdre has one hour this afternoon in which she can either practice the piano for the upcoming school concert, work at the library for $7 per hour, or babysit her neighbor's son for $10 per hour. Deirdre chooses to practice the piano, but
if she hadn't chosen to practice the piano, she would have chosen to babysit over working at the library. What is the
opportunity cost of Deirdre's decisions
A. The value gained from practicing the piano for an hour.
B. The value of babysitting her neighbor's son for an hour.
C. The value of working at the library for an hour.
D. The value of babysitting her neighbor's son and working at the library for an hour.

The correct answer is B) The value of taking care of her neighbours son for 60 minutes.

Explanation:

Opportunity Cost belongs more in the parlance of microeconomics and is used to describe the idea that one cannot have everything all the time. There are alternative ends competing for limited means. In order words, when we decide to take a course of action, in the hope of achieving a thing or getting a reward, there is always another benefit forgone.

So knowing that there is an opportunity that was foregone helps the microeconomist to think carefully about what they want to achieve using the limited resources at their disposal.

Further simplified, if I have $5 dollars to spend, and that amount can purchase either a cupcake or a cup of ice cream, the one I chose to buy becomes the opportunity taken, whilst the alternative forgone is the opportunity cost.

Therefore, the cost of an item is not just the amount of money for which it was purchased, but all other alternatives with which the same amount could have been purchased.

In the question above, Deidre would have chosen to babysit her neighbor's son. That to her is the next best use of her time, and therefore the opportunity cost. According to the question, she wouldn't have worked in the library even if she had nothing else to do. Hence, that does not pass as opportunity cost.

Opportunity cost must be an alternative choice and is very subjective.

Cheers!

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