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.

Answer 1

Solution:

Opportunity cost is the amount forgone of next best alternative, when undergoing a certain activity. If Isabella attends the party, there are two alternatives she could choose:

1. Study for those two hours, earning a better grade worth $40

2. Do her job of waitressing, earning 10*2 = $20 in those two hours

Best alternative among the two mentioned is clearly studying (40 > 20), so $40 worth is forgone.

Furthermore, the cost of attending the play = $60. So, total opportunity cost of attending the play = 40 + 60 = $100.