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 $112 for the suit:

 

Store	Travel Time Each Way	Price of a Suit
	(Minutes)	(Dollars per suit)
Local Department Store	15	112
Across Town	30	89
Neighboring City	60	70

Juanita makes $26 an hour at work. She has to take time off work to purchase her suit, so each hour away from work costs her $26 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.

Store	Opportunity Cost of Time	Price of a Suit	Total Cost
	(Dollars)	(Dollars per suit)	(Dollars)
Local Department Store		112
Across Town		89
Neighboring City		70

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  _______  .

 

Answer 1

Local Department Store:

Opportunity cost is the value of money person sacrifice to purchase a dress.

Opportunity cost of time = 15 min to go + 15 min to come back + 30 min to shop = 60 min = 26

Total Cost = Opportunity cost of time + Price of a Dress = 26 + 112 = 138

Across Town:

Opportunity cost of time = 30 min to go + 30 min to come back + 30 min to shop = 90 min = 26 + 26/2 = $ 39

Total Cost = Opportunity cost of time + Price of a Dress = 39 + 89 = 128

Neighboring City:

Opportunity cost of time = 60 min to go + 60 min to come back + 30 min to shop = 150 min = 26 x 2 + 26/2 = 52 + 13 = 65

Total Cost = Opportunity cost of time + Price of a Dress = 65 + 70 = 135

Juanita will minimize the cost of the dress if she buys it from the Across Town.