Question

Jack currently works for a law firm full time and earns $60,000 a year. He is thinking of quitting his job to pursue a medical degree. Medical school will cost him $100,000 per year. If Jack quits his job and goes to medical school, the salary he currently earns would be considered what type of cost?

a.Opportunity cost

b.Fixed cost

c.Irrelevant cost

d.Sunk cost

Answer 1

If Jack quits his job and goes to medical school, the salary he currently earns would be considered as opportunity cost. Since by going to medical school, Jack has missed the opportunity to earn salary income in law firm, hence opportunity cost of going to medical school is the salary forgone in the law firm.

Opportunity cost of a decision may be defined as the cost of next best alternative sacrificed in order to take that decision. In other words, “opportunity cost is the opportunity lost.”

Whenever an assessment of cost is required for decision-making, opportunity cost serves the purpose.

Hence, correct option is (a)

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