Juanita is deciding whether to buy a suit that she wants, as well as where to bu
ID: 1145876 • Letter: J
Question
Juanita is deciding whether to buy a suit that she wants, as well as where to buy it. Three stores carry the same suit, 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 $130 for the suit:
Juanita makes $70 an hour at work. She has to take time off work to purchase her suit, so each hour away from work costs her $70 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 depreciation of her car when traveling.
Complete the following table by computing the opportunity cost of Juanita's time and the total cost of shopping at each location.
Assume that Juanita takes opportunity costs and the price of the suit into consideration when she shops. Juanita will minimize the cost of the suit if she buys it from the .
Store Travel Time Each Way Price of a Suit (Minutes) (Dollars per suit) Local Department Store 15 130 Across Town 30 86 Neighboring City 60 60 Discounted price Marked-up price Juanita's office Original priceExplanation / Answer
Store Opportunity cost of Time Price of a suit Total Cost Dollars Dollars per suit Dollars Local Department Store 35 130 165 Across Town 70 86 156 Neighboring City 140 60 200 Opportunity cost of time = 2*(Travel Time Each Way)*70 Total Cost = Opportunity cost of Time +Price of a suit. *Junata will minimize cost of she buys from Across town.
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