Question

Consider the outdoor activity of kayaking. Assume that the rental cost of kayaking equipment is $20 and kayak rental costs $80. If you go kayaking, you would also wear the endurance splash pants you purchased last year for $100. If you do not go kayaking, you could either work at your part-time job, which would earn you $65, or study at the library, which you value at $35. Suppose that you were planning to spend Saturday working at your part-time job, but a friend asks you to go kayaking. The opportunity cost of going kayaking is _______.

Answer 1

Opportunity cost can be defined as the cost which the person would have incurred if he had chosen any other option from what he is choosing right now. It is the given up opportunity to take another set of actions.

In the given scenario above, Kayaking is going to cost $100. (Rental cost of kayaking equipment + a Kayak, The $100 splash pants will be considered as the sunk cost which the person could have invested somewhere else and it will not be part of opportunity cost for kayaking and most importantly it spent last year. Sunk cost can be defined as money already spent and return not earned by that investment.)

On the other hand, if the person is doing his part-time job he will be earning $65. So, the opportunity cost of going to Kayaking is just $65. To go for Kayaking the person is giving up $65 wage in form of earnings it is the amount the person would have earned if he had chosen the alternate action of working rather than Kayaking.