Chapter 10R, Problem 1MCQ

To determine

The level of opportunity cost of attending the college.

Answer to Problem 1MCQ

(d) $51,500.

Explanation of Solution

The total opportunity cost of attending the college includes the expenses at the college included in explicit costs and the salary forgone included in implicit costs in expectation of additional income and better living standards. This is the total cost of attending college. A rational person would attend college if his expected income is higher than this total opportunity cost.

The total opportunity cost includes both explicit and implicit costs. Tuition fees and explicit costs are part of total opportunity costs. Deciding based on only explicit costs can result in misleading outcomes which may not be in the best interest of the decision maker.

Economics Concept Introduction

Introduction:

The opportunity cost of an activity is the sum of explicit and implicit costs. Explicit costs are visible costs in terms of expenses on the purchase of goods and services. Implicit costs on the other hand include the benefits forgone. Both combined consist of total opportunity costs.