Economics interest question. Please!

Question

earning is $120 a day. She spent $750 out of pocket at a 5 day vacation this expense could earn 5% interest payment on her mutual funds account. The real cost of her vacation is?

 

A.  750

B. 870

c. 1,388

D. 1,350

Answer 1

I know this is late, but hopefully it helps you understand. 

 

 

Because this is an economic costs, you must consider both the explicit costs (direct costs/payments) AND implicit costs (all other indirect costs of persuing the opportunitity). 

 

The explicit cost here is just the direct cost of the vacation ($750).

 

The implicit costs are all other costs that you are losing out on by going on vacation:

    You are losing $120 per day from work times 5 days equals $600

    You are also losing out on the interest that you could have earned from your $750: $750 * 5% = $37.50

 

So your total costs of the vacation is $750 + $600 + $37.50 = $1387.50