Opportunity Cost problem

Question

Upon graduating from high school, Stewart has a choice of working full-time or attending college full time. College tuition and books cost $10,000 annually. If he went to college, he would have to live near the college where the average monthly rent would be $700. If he worked, he could make $30,000 annually and would live in a less expensive area where the average monthly rent would be $500. What would be Stewart's opportunity cost of attending college?

Answer 1

To start, let's define the options as choices:

Choice 1-college

Choice 2- work

 

The opportunity cost of choice 1(attending college) = cost of choice 1 + loss of profits of choice 2

 

cost of choice 1 for 1 year= $10,000

loss of profits of choice 2 = $30,000 +($200 a month saved on rent x 12 months) = $30,000+$2400=32400

 

So:

The opportunity cost of choice 1 = $10,000+$32,400 = $42,400