Question

suppose that university has built a new parking garage. There is always an available parking spot, but it cost 1 $ per day. Before the new garage was built , it usually took 20 minutes of causing to find a parking space. compare the opportunity cost of parking in the new garage with in the old parking lot. Which is less costly and by how much?

Answer 1

Opportunity cost is the cost of next best alternative which is foregone for the current option which is undertaken. In this case, there is free parking ie an old parking lot and a new parking which has a fees of $1. Here the parking is charging a price of $1, but the 20 minutes are saved which were wasted for finding the parking spot.

The opportunity cost of parking in the new lot is $1 but it leads to saving of 20 minutes.

Also the opportunity cost of parking in the old lot is spending 20 minutes and saving $1 but there is not always a spot available in the free area.

So in case of old parking lot, 20 minutes are spent but parking is free while in new lot, there is $1 fee but there is available spot. So 20 minutes is equated to $1 in this case.

If an individual values $1 more than 20 minutes , then he would choose old parking , but if he values 20 minutes more than $1, he should use new parking lot.