A person is faced with undertaking these four activities on Monday – watch a movie, visit a
friend, attend a lecture, or sleep. A movie ticket costs GH¢ 28.00. The cost of transportation
to visit the friend is GH¢ 40.00 while it is GH¢ 55.00 to attend the lecture. If she stays home
to sleep, she will put on the air-condition which will increase the electricity bill by GH¢
30.00. The benefits expected from these activities are accordingly presented in the table
below.
Activity Direct cost
(GH¢)
Benefit
(GH¢)
Watch a movie 28 50
Visit a friend 40 85
Attend a lecture 55 92
Sleep 30 68
Use the information provided in the table to answer the following questions.
a) Rank the activities in order of importance, from the first to the last.
b) What is the opportunity cost of the first activity? Explain your answer.
c) Compute the net benefit of the first item using
i. the direct cost.
ii. the opportunity cost.
d) Suppose there is a 10% tax on the net benefit. With respect to the first item, how
much tax will the individual pay when the
i. direct cost approach is used?
ii. opportunity cost approach is used?
