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Question
Assertion (A): Opportunity costs are relevant in business decision making.
Reasoning (R): Opportunity cost reflects the value of the next best alternative foregone when a decision is made.
Options
A is true but R is false.
A is false but R is true.
Both A and R are true and R explains A.
Both A and R are true but R does not explain A.
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Solution
Both A and R are true and R explains A.
Explanation:
The assertion is true because opportunity costs are a crucial variable in managerial accounting that allows business owners to analyze the genuine economic profitability of rival initiatives. The reasoning is also true and provides an excellent explanation, since it correctly defines opportunity cost as the potential revenue or value lost by sacrificing the next best alternative. Because decision-making is fundamentally about choosing one alternative over another, comprehending the foregone value is precisely why it remains a highly relevant factor.
