Question

Jerry is working at his full time job and earning income of $35000 a year. he lives in a bachelor apartment and pays $15000 a year for rent while paying $12000 annually on food expenses.
he is deciding whether to go back to school to earn a four-year bachelor degree. The cost of tuition and books is $20000 a year. He will need to move and live on campus and purchase food from campus in all four years. The cost of a campus dorm and food is $20000 annually.
what is the total cost of Jerry's decision to go back to school.

Answer 1

Total cost= Explicit cost + Implicit cost

Explicit cost is the cost which involves actual payments. This includes cost of tuition and books= $20000, cost of a campus dorm and food = $20000.

Implicit cost is opportunity cost of next best alternative foregone. This includes net current salary, that is, current salary minus current expenses.  Net current salary=  $35000 - $15000 -$12000 = $ 8000.

Total Cost for one year = $20000 + $20000 + $8000 = $48,000

Total cost for four years= 4 X 48,000 = $ 192,000.

Thus the total cost of Jerry's decision to go back to school is $192,000.