Question

can you explain in details how did we come up with this answer and how to answer similar

NO.140 A student is deciding whether to attend a two-year graduate school program. The tuition is
$12,500 per year and the cost of books and supplies is an additional $1,000 per year. The
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studentcould work instead of going to graduate school and earn $50,000 per year. What is the
economic cost of attending graduate school for the student?
A. $27,000
B. $63,500
C. $73,000
D. $127,000
Answer: D

Answer 1

Economic cost include both accounting cost and opportunity cost. Here tution fee and cost of books and supplies are accounting costs as these costs are actually incurred and recorded. Whereas the student sacrifices her work and income from that work to attend the graduate program. Hence this sacrifice of income is the opportunity cost of attending graduate school.

Thus economic cost of attending graduate school for the student will be = (12500+1000+50000)*2 = $1,27,000. Here the cost is multiplied by two because the graduate program is of 2 years duration.

answered by: anonymous