How Are Changes in Opportunity Cost Related to Decision-Making Behavior

question 37

Multiple Choice

How are changes in opportunity cost related to decision-making behavior?

• A) The lower the opportunity cost of doing an activity X, the more likely activity X will be done.
• B) The higher the opportunity cost of doing activity X, the more likely activity X will be done.
• C) Changes in the opportunity cost play no role in decision-making.
• D) The lower the opportunity cost of doing activity Y, the more likely activity X will be done.
• E) The higher the opportunity cost of doing activity Y, the less likely activity X will be done.

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Definitions:

Cash-Basis Expenses

Expenses recorded when cash is actually paid out, under the cash basis of accounting, as opposed to the accrual basis which recognizes expenses when they are incurred.

Warranty Expenses

Costs recognized by companies to cover repairs or replacements for customers as part of product warranty agreements.

Inventory Purchases

The buying of goods to be sold in the normal course of business operations.

Sustainable Income

Revenue that can be maintained for the foreseeable future without diminishing resources or opportunities.