Question

Nick lives in a college town, paying $6,000 a year for his apartment. He is calculating his opportunity cost of getting a BBA degree from the local college. If he goes to the college, he’ll pay $13,000 for tuition and $1,800 for textbooks each year. If he did not go to college, he'd live in his parents' house for free. The rest of his expenses would also be the same no matter whether or not he goes to the college. Nick is offered a job paying $24,000 per year, which he won't be able to do if he is in college. Nick expects to graduate in four years. What is Nick's opportunity cost of getting his BBA degree?

Answer 1

Opportunity cost is the best benefit foregone because of not choosing the alternative.

If the degree is availed, the opportunity of getting salary out of a job is gone. Therefore, the opportunity cost is the aggregate of such salary during the tenure of graduation.

Opportunity cost = Salary per year × Number of years of graduation

                             = $24,000 × 4

                             = $96,000 (Answer)