Question

Juanita is deciding whether to buy a skirt that she wants, as well as where to buy it. Three stores carry the same skirt, 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 $130 for the skirt:

	Travel Time Each Way	Price of a Skirt
Store	(Minutes)	(Dollars per skirt)
Local Department Store	15	130
Across Town	30	86
Neighboring City	60	60

Juanita makes $70 an hour at work. She has to take time off work to purchase her skirt, so each hour away from work costs her $70 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 (Dollars)	Price of a Skirt (Dollars per skirt)	Total Cost (Dollars)
Local Department Store		130
Across Town		86
Neighboring City		60

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

Answer 1

Local department store

Opportunity cost of time =(15+15+30)*70/60 =$70

Total cost = 130+70=$200

Across town

Opportunity cost = (30+30+30)*70/60 = $105

Total cost =$191

Neighboring city

Opportunity cost =(60+60+30)*70/60

=$175

Total cost =$235

Minimum cost at ACROSS THE TOWN