Apply opportunity cost to a business choice
Identify the next-best feasible option a business gives up when it makes a decision.
Section 1 · Understanding business activity
Cambridge IGCSE (9–1) Business 0774, 2027–2029 Version 2, Topic 1. Apply concepts to the stated business and weigh benefits against costs and stakeholder effects. Written practice is self-checked and does not certify exam readiness
Before you begin
- No previous business study is assumed. Read each scenario for the decision-maker, objective, available evidence and constraints.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
What is the opportunity cost of choosing one feasible option?
What you will learn
- Define opportunity cost
- Identify the next-best alternative
- Apply the concept to scarce business resources
Find the next-best option
Resources such as finance, time, premises and skilled workers are limited. Choosing one use prevents some alternatives.
Opportunity cost is the value of the next-best feasible alternative forgone. It is not every rejected option and need not be a cash expense.
Use the decision-maker's ranking
List realistic alternatives available to the decision-maker, then identify which was most valuable after the chosen option.
An attractive option that was not feasible is not the opportunity cost. Explain the benefit sacrificed, not just the amount spent on the chosen option.
Pause and explain
A firm chooses a delivery van. Its next-best use of the money was staff training. What is the opportunity cost?
Worked example
A shop owner can use a spare room for a stockroom, a repair service or a small café. The owner chooses the repair service and ranks the café second. What is the opportunity cost?
Show the worked solution
- The selected option is the repair service.
- Compare the remaining feasible choices using the stated ranking.
- Identify the best alternative given up.
Answer The expected benefit of operating the small café.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A founder uses a weekend to prepare a launch. The next-best use was paid freelance work worth $180. State the opportunity cost.
Give me a hint
Use the ranked next-best feasible alternative.
Compare my reasoning
- The founder chose launch preparation.
- Freelance work was ranked next.
- State the forgone benefit.
The $180 freelance earnings, or the benefit of that work, are the opportunity cost.
Look for these in your work
- Chosen option separated
- Next-best identified
- Forgone benefit stated
A school business club can spend $500 on a stall or an online store. The stall is chosen; the online store would have generated the highest expected contribution among rejected options. Explain the opportunity cost.
Give me a hint
Focus on the best rejected feasible alternative, not the stall's price.
Compare my reasoning
- Both uses are feasible.
- The online store is the next-best choice.
- Its expected contribution is the forgone benefit.
The expected contribution the club gives up by not creating the online store.
Look for these in your work
- Feasibility used
- Ranking applied
- Benefit expressed
A manager calls the cost of all rejected projects the opportunity cost. Explain the correction and one condition the manager should check.
Give me a hint
The definition selects one alternative, and it must have been available.
Compare my reasoning
- Opportunity cost is one next-best option.
- It is not the total of every rejected idea.
- Check that the alternative was feasible with the available resources.
Use the value of the next-best feasible project forgone, not the sum of all rejected projects; confirm that it could actually have been undertaken.
Look for these in your work
- Definition corrected
- Sum rejected
- Feasibility checked
Common mistakes
- Adding the benefits of every rejected option
- Naming the selected option as its own opportunity cost
- Using an infeasible alternative
What can you explain now?
What is the opportunity cost of choosing one feasible option?
Compare with the explanation
The next-best feasible alternative forgone
It is the most valuable rejected feasible use.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
Why is opportunity cost not always a cash payment, and why must the alternative be feasible?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.