Question

Juanita is deciding whether to buy a dress that she wants, as well as where to buy it. Three stores carry the same dress, 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 $103 for the dress:

Store	Travel Time Each Way	Price of a Dress
	(Minutes)	(Dollars per dress)
Local Department Store	15	103
Across Town	30	89
Neighboring City	60	63

Juanita makes $16 an hour at work. She has to take time off work to purchase her dress, so each hour away from work costs her $16 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 Dress	Total Cost
	(Dollars)	(Dollars per dress)	(Dollars)
Local Department Store
Across Town
Neighboring City

Assume that Juanita takes opportunity costs and the price of the dress into consideration when she shops. Juanita will minimize the cost of the dress if she buys it from the store in the _______ .

Answer 1

Answer:

a) The table of comparison of costs:

Calculation of opportunity cost of time:

1. Local Department Shop: Time travelled + time for shopping = 15*2 + 30 = 60 minutes
Cost of 60 minutes = $16

Across town: Time travelled + time for shopping = 30*2 + 30 = 90 minutes
Cost of 90 minutes = $24

Neighboring city: Time travelled + time for shopping = 60*2 + 30 = 150 minutes
Cost of 150 minutes = $40

Final choice: The most beneficial deal is the one where she spends least total cost. Therefore, it is profitable for her to shop in the neighboring city.