Question

. Determining opportunity cost

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 $129 for the suit:

  

Store	Travel Time Each Way	Price of a Suit
	(Minutes)	(Dollars per suit)
Local Department Store	15	129
Across Town	30	86
Neighboring City	60	63

Juanita makes $50 an hour at work. She has to take time off work to purchase her suit, so each hour away from work costs her $50 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		129
Across Town		86
Neighboring City		63

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

Opportunity Cost is the cost of foregone alternative.

When Junaita goes to Local Departmental Store, it will take her 30 minutes to travel bothways and 30 minutes to do shopping. So, total time spent by junaita is (15 + 15 + 30) 60 minutes i.e 1 hour. At work she gets $50 per hour. So, her opportunity cost of time is $50. The price of suit is $129. So, her toatl cost is $50 + $129 = $179

When Junaita goes across town, it will take her 30 + 30 = 60 min to travel bothway and 30 min to do shopping. So, total time spent by her is 30 + 30 + 30 = 90 min or 1 hour 30 min. Since she gets $50 per hour, her opportunity cost of time is $50 + $50/2 = $50 + $25 = $75. The price of suit is $86. Total Cost is $75 + $86 = $161.

When Junaita goe sto neighbouring city, it will take her 60 + 60 = 120 min to travel bothways and 30 min for shopping. Total time taken by her is 60 + 60 + 30 = 150 min or 2 hours 30 min. Her hourly wage is $50, so her opportunity cost of time is 2 * $50 + $50/2 = $100 + $25 = $125. The price of suit is $63. Total Cost is $125 + $63 = $188.

Store	Opportunity Cost of Time	Price of a Suit	Total Cost
(Dollars)	(Dollars per suit)	(Dollars)	(Dollars)
Local Department Store	50	129	179
Across Town	75	86	161
Neighboring City	125	63	188

Junaita's Cost will be minimum when she purchases suit across town. Her cost is lowest at $161 when she purchases suit across town.