Question

Define opportunity cost. Give an example of a personal decision you made within the past year. What explicit costs were involved? What opportunity costs were involved? Explain how youarrived at your decision. Include the role of opportunity costs in your explanation and describecriteria you used to evaluate your options.

Answer 1

Opportunity cost is the value of the next best alternative foregone.

The decision I have made in the past year is attending college instead of working at the local bakery.

Explicit costs involved in my decision to study is the tuition fees, dorm expenses, books, car that I have purchased to attend college.

My opportunity or implicit cost is the salary foregone by not working in the bakery.

I arrived at my decision to attend college because the value of getting a college degree was more than opportunity cost, i.e the foregone salary.