14. Joe prefers Blu-ray movies to books, but likes video games most of all. Suppose Blu-ray movies cost $25 each, books cost $20 each, and video games cost $100 each.
If Joe can only spend his money on Blu-ray movies, books, or video games, what is the “opportunity cost” to him of 1 video game? That is, how much of his next-best option does he have to give up in order to get 1 video game?
A. 5 books
B. 4 Blu-ray movies
C. 4 Blu-ray movies and 5 books
D. $25

Question

14. Joe prefers Blu-ray movies to books, but likes video games most of all. Suppose Blu-ray movies cost $25 each, books cost $20 each, and video games cost $100 each. 
If Joe can only spend his money on Blu-ray movies, books, or video games, what is the “opportunity cost” to him of 1 video game? That is, how much of his next-best option does he have to give up in order to get 1 video game?
A.    5 books
B.    4 Blu-ray movies
C.    4 Blu-ray movies and 5 books
D.    $25

BlackTom AI · Accepted Answer

We need to determine the opportunity cost of 1 video game for Joe, given his preferences. Joe ranks video games highest, then Blu-ray movies, then books, in that order. The opportunity cost is the quantity of the next-best alternative that must be forgone to obtain the item.

First, establish the price of the alternatives: Blu-ray movie costs $25, books cost $20, and a video game costs $100.

Because the next-best option after video games is Blu-ray movies (since Joe prefers Blu-ray to books), the opportunity cost should be expressed in terms of Blu-ray movies forgone to get one video game. Since 1 video game costs $100, Joe must give up 100/25 = 4 Blu-ray movies.

Now evaluate the other choices:
- Option A: 5 books would cost 5 × $20 = $100, but books are not the next-best alternative after video games given Joe’s stated preferences (Blu-ray movies sit between video games and books), so this does not reflect the true opportunity cost.
- Option C: 4 Blu-ray movies and 5 books mixes both alternatives and sums to $100, but opportunity cost is measured by the forgone amount of the next-best single alternative, not a combination.
- Option D: $25 represents the price of one Blu-ray movie, not the total opportunity cost in terms of units forgone to obtain one video game.

Therefore, the correct interpretation is that the opportunity cost of 1 video game is the forgone amount of the next-best option, which is 4 Blu-ray movies.

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