1. 2. 2. Determining opportunity cost Juanita is deciding whether to buy a skirt
ID: 1145474 • Letter: 1
Question
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2. Determining opportunity cost Juanita is deciding whether to buy a skirt that she wants, as well as where to buy it. Three stores carry the same skirt, but it is more convenient for Juanita to get to some stores than others. For example, she can go to her local store, located 15 minutes away from where she works, and pay a marked-up price of $103 for the skirt: price Juanita's office Original price Store Local Department Store Across Town Neighboring City Travel Time Each Way (Minutes) 15 30 60 Price of a Skirt (Dollars per skirt) 103 87 64 Juanita makes $16 an hour at work. She has to take time off work to purchase her skirt, so each hour away from work costs her $16 in lost income Assume that returning to work takes Juanita the same amount of time as getting to a store and that it takes her 30 minutes to shop. As you answer the following questions, ignore the cost of gasoline and depreclation of her car when travelingExplanation / Answer
Question 1
Junita makes $16 an hour at work. This implies that loss of one hour of work means a loss of $16 in income for Junita.
If she goes to shop the skirt at local department store then she will be spending 30 minutes (to and fro) on travelling and 30 minutes to shop. This means a total spending of 1 hour and thus would lose $16 in income.
Thus, the opportunity cost of time going to local department store is $16.
If she goes to shop the skirt at store across town then she will be spending 60 minutes (to and fro) on travelling and 30 minutes to shop. This means a total spending of 1 hour and 30 minutes and thus would lose $24 in income.
Thus, the opportunity cost of time going to store across town is $24.
If she goes to shop the skirt at store in neighboring city then she will be spending 120 minutes (to and fro) on travelling and 30 minutes to shop. This means a total spending of 2 hours and 30 minutes and thus would lose $40 in income.
Thus, the opportunity cost of time going to store in the neighboring city is $40.
Following is the complete table -
Store Opportunity cost of time Price of a skirt Total Cost Local department store $16 $103 $119 Across Town $24 $87 $111 Neighboring City $40 $64 $104Related Questions
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