Question

Isabella is a student and also works part-time as a waitress earning $10 per hour. Isabella was invited to attend a play on Sunday afternoon. Attending the play will take 2 hours, and a ticket costs $60. If Isabella were to spend the time studying for an exam, she will receive an HD instead of a D. She values a HD over a D at $40. What is Isabella’s opportunity cost (OC) of attending the play? Explain your answer.

Your answer will be marked according to the following categories.

• Clarity of Exposition
• State the correct OC
• State each component of the OC
• Detailed Explanation (Justify Answer)

Answer 1

Opportunity cost is the cost associated with forgoing a choice over others. Mathematically, opportunity cost can be given by

OC = FO - CO

Where, FO is return on best forgone option

And CO is return on chosen option.

In this case, had she not attented the play, she would've studied and got a better grade. She values the grade at $40. We're not considering her working part time for the 2hrs because, it will generate $20 as compared to $40 in the former case. Therefore, we go with the best return of $40 in this case (FO). Since she had bought the tickets for the play at $60, the return is -$60 (CO) as she has to pay herself for the tickets and doesn't receive any remuneration for attending the play.

So, the OC = 40-(-60) = 100

Therefore the opportunity cost in this case is $100.

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