Question

You are planning to attend college next year. The total cost of tuition and textbooks is $10,000. If you go to school, your room and board will cost you $5,000. If you did not go to school, however, you would live at home, and your total room and board would only be $1,000. Additionally, if you did not go to college, you would work a job making $20,000 for the year.
1. In terms of room and board alone, what would be opportunity cost of attending college. Be sure to explain your answer
2. What are the explicit costs of attending school? How much should be included for room and board?
3. What would be the implicit cost of attending college next year?
4. What would be the total opportunity cost of attending college next year?

Answer 1

Opportunity Cost of attending college, in terms of room and board is $4000 . Explicit Cost, Implicit Cost of attending college is $14000, $20000. Total Opportunity Cost of attending college is $34000

1. Opportunity Cost is the cost of next best alternate foregone, as in value of sacrifice made, while choosing an alternative.

• Money foregone to attend college, in room & board = room & board cost with college - room & board cost without college = 5000 - 1000 = 4000

2. Explicit Cost is the actual out of pocket cash expenses outflow, done for choosing an option. Eg : Cash expenditures

• In this case, cash expenses for attending college = 14000

3. Implicit Cost is the implied estimated cost of self supplied factors of production, like value of self labour & self owned land etc.

• In this case : Value of self labour, sacrificed for attending college, ie the salary which could have earned by doing job meanwhile = 20000

4. Total opportunity cost of attending college = Explicit Cost + Implicit Cost = 14000 + 20000 = 34000

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