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Case Interview Prep

Category - Economics

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Alchem factories are offered competitive pricing by two competing processors of raw goods. Managers at the factory opt for the first company based on price despite the second company offering free shipping. The value given up in shipping costs is an example of a(an):
  1. opportunity incentive
  2. substitute cost
  3. substitute incentive
  4. opportunity cost
Explanation
Answer: D - Opportunity cost is the value given up in shipping costs.

Key Takeaway: An opportunity cost is the value given up by a consumer when one product or service is chosen over another. Consumers like to narrow or minimize opportunity costs as much as possible which is the reason behind careful bidding and evaluation of goods.
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