Question

In: Economics

Juanita is deciding whether to buy a dress that she wants, as well as where to buy it

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 $129 for the dress:

StoreTravel Time Each Way (Minutes)Price of a Dress (Dollars per dress)
Local Department Store15129
Across Town3086
Neighboring City6063

Juanita makes \(\$ 50\) an hour at work. She has to take time off work to purchase her dress, 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.


StoreOpportunity Cost of Time (Dollars)Price of a Dress (Dollars per dress)Total Cost (Dollars)
Local Department Store
129
Across Town
86
Neighboring City
63


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 _______.


Solutions

Expert Solution

Store opportunity cost total cost
Local 50 179
Across town 75 161
Neighboring city 125 188

Thus lowest cost when across town , so buy it from local store


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