Question 3 15 MARKS

Explain your understanding of opportunity cost by addressing the following:

1. What is an opportunity cost? (2)
2. Under what circumstances are opportunity costs relevant to a decision? (4)
3. Construct an example of an opportunity cost. (5)
4. Briefly discuss why you think financial reports for investors and managerial reports for managers may or may not differ in their treatment of opportunity costs. (4)