Estimating the Opportunity Cost. Julia brings home $1,630 per month after taxes.

Question

Estimating the Opportunity Cost. Julia brings home $1,630 per month after taxes. Julia's rent is $330 per month, her utilities are $100 per month, and her car payment is $252 per month. Julia is currently paying $193 per month to her orthodontist for her braces. Julia's groceries cost $44 per week and she estimates her other expenses to be $161 per month. As a result, she has $418 left each month to put toward savings to reach her financial goals. Julia is considering trading in her car for a new one. Her new car payment will be $324 per month, and her insurance cost willincrease by $64 per month. Julia determines that her other car-related expenses (gas, oil) will stay about the same. What is the opportunity cost if Julia purchases the new car? The opportunity cost if Julia purchases the new car is $ (Round to the nearest dollar.)

Explanation / Answer

As rent, utilities,orthodontist,groceries,other expenses wont change with the purchase of new car, so we will not consider these expenses while calculating opportunity cost
Opportunity Cost=New Car Payment-Decrease in Insurance-Old Car Payment=324-64-252=8

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