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opportunity costs

1. You bought a ticket for $50 to a concert. You value your time at $10/hour. The concert is expected to last 2 hours. As you are walking into the arena someone offers you $75 for your ticket. What is the opportunity cost of attending the concert ? $20 time cost + $75=$95.

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opportunity costs

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  1. 1. You bought a ticket for $50 to a concert. You value your time at $10/hour. The concert is expected to last 2 hours. As you are walking into the arena someone offers you $75 for your ticket. What is the opportunity cost of attending the concert ? $20 time cost + $75=$95

  2. 2. You like to play golf. Greens' fees are $20 and it takes approximately 4 hours to play. You value your time at $10/hour. What is the opportunity cost of playing a round of golf? • (4 x $10) time costs + $20 green fees = $60.

  3. 3. You like to play golf. On January 1 you buy an annual membership for $500 to the local country club. You expect to play 25 rounds of golf during the year, so the average cost per round is $500/25=$20. You value your time at $10/hour and it takes approximately 4 hour to play. What is the opportunity cost of playing a round of golf? • $40, only time costs matter, the annual membership is a sunk cost.

  4. 4. You like to play golf. On January 1 you buy an annual membership for $500 to the local country club. On December 31 you realize that your busy schedule kept you from playing even a single round of golf the past year. You value your time at $10/hour and it takes approximately 4 hour to play. You decide to play a New Year's Eve round of golf. What is the opportunity cost of playing a round of golf? • $40

  5. 5. You've already spent $500 fixing your car and it still won't run. To get it to run you will have to pay $1000 more. What is the opportunity cost of getting your car to run? • $1000, the $500 is a sunk cost

  6. You’ve spent $500 on car repairs and your car still won’t run. A mechanic guarantees that he can get the car to run for $1000. If your car is running, a used car auctioneer will give you $1250 for your car. Should you spend the $1000 fixing your car? • Yes, you gain $1250. If you hadn’t spent the extra $1000 you will lose $500. If you spend $1500 and can sell the car for $1250 you will only lose $250.

  7. 6. You go to a 2 ½ hour movie. You value your time at $10/hour. Movie tickets are non-refundable and cost $6.50. After ½ hour you decide you hate the movie. What is the opportunity cost of watching the remainder of the movie in hope that it will get better? • $20. The $6.50 is a sunk cost, and the half hour you have already spent is a sunk cost.

  8. 7. You start your own business. In order to do so, you quit your $25,000/ year job. You also take $100,000 out of your savings account to buy a building and fixtures. Even if you go out of business, you can sell your building for $100,000. You were earning 6% on your savings account. What is the annual opportunity cost of starting your own business? • $25000 + 6% x $100000 = $31,000 • (the $100,000 is not part of the cost because you have just traded one asset for another.

  9. You are going to Padre Island, TX for spring break with 4 friends. Driving takes 20 hours with gas and wear and tear costing $50. Flying takes 2 hours and costs $410. What is the value you have to place on your time to make you indifferent between the two modes of transportation? • Cost of driving = cost of flying • 20 hrs x value of time + $50 = 2 hrs x value of time + $410 • Value of time=360/18=$20

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