This problem asks about opportunity costs in various situations. a) It is the night before a...

This problem asks about opportunity costs in various situations.

a) It is the night before a statistics exam. You are dividing your time between studying for the exam and reading comic books. Each hour of studying will raise your score by 2 points, and reading a comic book takes 30 minutes. What is the opportunity cost of reading a comic book?

b) A piece of jewelry that you can order online costs $200. What is the opportunity cost of the piece of jewelry?

c) You are in charge of dinner for you and your roommates. You can either buy the ingredients and make the meal from scratch, which would cost $10 and take 2 hours, or you can order the meal, which would cost $30 and take 2 minutes. Why would an economist say that the cost of the meal is not necessarily higher if you order it? Is the cost necessarily higher if you would use the time you would save in a pure leisure activity, such as playing video games?

Expert Solution

a) It is the night before a statistics exam. You are dividing your time between studying for the exam and reading comic books. Each hour of studying will raise your score by 2 points, and reading a comic book takes 30 minutes. What is the opportunity cost of reading a comic book?

Time required in reading a comic book=30 minutes

Time required in studying and raising score by 2 points=1 hour or 60 minutes

So, Time required in studying and raising score by 1 points= 60/2=30 minutes

In 30 minutes, I can either read a comic book or can raise the score by 1 points. So, opportunity cost of reading a comic book is equal to the raise in score by 1 points.

b) A piece of jewelry that you can order online costs $200. What is the opportunity cost of the piece of jewelry?

Opportunity cost will be equal to the $200 that could have been used in spending on another second best alternative.

c) You are in charge of dinner for you and your roommates. You can either buy the ingredients and make the meal from scratch, which would cost $10 and take 2 hours, or you can order the meal, which would cost $30 and take 2 minutes. Why would an economist say that the cost of the meal is not necessarily higher if you order it? Is the cost necessarily higher if you would use the time you would save in a pure leisure activity, such as playing video games?

In this scenario, it costs me $20 if I order the meal. But, at the same times it saves me 118 minutes (2*60-2).

This cost is not necessarily higher if the saving of 118 minutes could be utilized in some other activity.

Cost is not higher if utility from playing video games for 118 minutes is same or higher than the utility that can be obtained from saving $20.

Rahul Sunny answered 2 years ago

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