The correct answer is option 'D', which states that the opportunity cost of production of a commodity is the next best alternative output. Let's understand this concept in detail.

Opportunity cost refers to the value of the best alternative that is forgone when a choice is made. In the context of production, it represents the cost of not producing the next best alternative output. In other words, it is the value of the benefits that could have been derived from the next best alternative use of the resources.

Opportunity cost arises because resources are scarce and have alternative uses. When a firm decides to produce a particular commodity, it has to allocate its limited resources, such as labor, capital, and land, to that production. By doing so, it forgoes the opportunity to use those resources in producing another commodity.

To understand this concept, let's consider an example. Suppose a firm has the option to produce either computers or mobile phones. If it chooses to produce computers, the opportunity cost would be the value of the mobile phones that could have been produced with the same resources. Conversely, if it chooses to produce mobile phones, the opportunity cost would be the value of the computers that could have been produced.

The opportunity cost of production is not the actual cost incurred or the cost that could have been incurred under a different method of production. It specifically refers to the value of the next best alternative output that is forgone.

Understanding the concept of opportunity cost is essential for decision-making in production. Firms need to compare the benefits and costs of different production choices to make efficient decisions. By considering the opportunity cost, they can evaluate whether the benefits derived from producing a particular commodity outweigh the benefits of producing the next best alternative.

In conclusion, the opportunity cost of production of a commodity is the value of the next best alternative output that is forgone. It represents the benefits that could have been derived from using the resources in an alternative way. By considering opportunity costs, firms can make informed decisions and allocate their scarce resources efficiently.