Question

Answer the following questions and explain your answers.

a) Simon is given a free ticket to see Coldplay Saturday night. He already has a ticket to see Sting in concert that night. The Sting ticket cost Simon $50 though he would have paid as much as $80 to go to the show. Simon knows that he can easily sell the Sting ticket on Craigslist for $60. What is his opportunity cost of seeing Coldplay?

b)Four years after graduating from college you must decide if you want to go on as an accountant (your college major) or if you want to make a career change and become a singer. Should the cost of your education matter for your decision after you have graduated from the college?

Answer 1

a) Simon's opportunity cost of seeing Coldplay is $20.

reason: Simon already had Sting ticket. Its value for Simon = $80. Its resale vaue = $60. (In other words, Simon incurs an economic loss of $20 on resale.) So, his opportunity cost of seeing Coldplay is $20. That is, by going to Coldplay, Simon has forgone his Sting ticket whose value for him is $80. But monetarily, he has regained $60. Therefore net loss of $20 (value which is not reimbursed.)

b) No, it does not matter.

reason: After college, I will decide to be an accountant or a singer. So, if I become a singer, the opportunity cost of that would be the money I would make as an accountant. The education cost is the sunk cost. So, it will not be considered for my decision. The decision is made after completing the education.