Jimmy, a mechanic, earns $30 per hour. Susan, a secretary, earns $20 per hour. T

Question

Jimmy, a mechanic, earns $30 per hour. Susan, a secretary, earns $20 per hour. They need to do 12 hour of household work. Alternately, they can hire Sheena who charges $10 per hour.

What is the value of Jimmy's household production using the opportunity cost method? Base on this, what is Susan's opportunity cost?

I am a bit lost here. Do I start off by assuming each works 8 hours per day and the 12 hours of household work is per week? If I assume this, do I have enough info to calculate the HP value using the opportunity cost method? I appreciate your help in advance!

Explanation / Answer

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Honestly, I think you're making it more complicated than it's supposed to be (which is something I often do as well).

If they need to do 12 hour of work and Jimmy can make $30 every hour he is working then this means that if he chooses to do the 12 hours of household work, he is giving up $360 total for the work he could have done (Note: $360 seems like it would be the opportunity cost but it's not). By doing the work himself he is saving $120 by not having to hire Sheena. Therefore his economic opportunity cost is $360 - $120 = $240

Whether he needs to do it over a week or every day is irrelevant. Let's just assume they need to do 12 hours of household work and then they will be done (like they need to repair the roof or something).

Susan's total opportunity cost would be 12 x ($20 - $10) = $120

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