Question

You are a professor of economics at a university.​ You've been offered the position of serving as department​ head, which comes with an annual salary that is ​$7,500 higher than your current salary.​ However, the position will require you to work 200 additional hours per year. Suppose the next best use of your time is spending it with your​ family, which has value of ​$10 per hour.The change in net benefit is $_______.

Answer 1

Answer:

The change in net benefit is $5,500.

Explanation:

A professor of economics has been offered the position of department head.  

He/she will get an annual salary of $7,500 higher than the current salary.

However, the person is required to work for an additional 200 hours per year.

The second-best alternative to this work is to spend time with family which is valued at $10/hour.

Because of the scarcity of resources every economic decision has an opportunity cost. The opportunity cost can be defined as the cost of giving up the second best alternative.

The opportunity cost of working as a department head will be equal to time spent with family

= $200 \times \ 10$

= $2,000

The change in net benefit

= $7,500 - $2,000

= $5,500