For a plant moving from 70% capacity to 85% capacity, the opportunity cost is which of the following?

For a plant moving from 70% capacity to 85% capacity, the opportunity cost is which of the following?

• A. The cost of new capacity
• B. The higher production cost imposed on units existing capacity
• C. The total fixed cost
• D. The energy cost of running more hours

Answer: (B)

Moving from 70% to 85% capacity means using more of the same plants and equipment. Opportunity cost is the value of the next best alternative use of those resources, so when you push utilization higher, the constraint is how much extra cost you impose on the units already produced or being produced. This shows up as higher per-unit costs on existing capacity due to factors like overtime, wear, and reduced efficiency from operating longer hours. The cost of new capacity or the total fixed cost aren’t the immediate opportunity costs of this shift, and energy cost is only part of the broader incremental costs. Thus the opportunity cost is the higher production cost imposed on units existing capacity.

Moving from 70% to 85% capacity means using more of the same plants and equipment. Opportunity cost is the value of the next best alternative use of those resources, so when you push utilization higher, the constraint is how much extra cost you impose on the units already produced or being produced. This shows up as higher per-unit costs on existing capacity due to factors like overtime, wear, and reduced efficiency from operating longer hours. The cost of new capacity or the total fixed cost aren’t the immediate opportunity costs of this shift, and energy cost is only part of the broader incremental costs. Thus the opportunity cost is the higher production cost imposed on units existing capacity.