Suppose Andrea has a job that pays her $25 000 per year (after taxes).She is considering quitting her job and going to university full time for four years.Tuition fees and books will cost $12 000 per year.Living expenses in either situation will cost $10 000 per year.What is the opportunity cost of Andrea's four-year university degree?

Question

Quizplus · Accepted Answer

The opportunity cost is the value of the next best alternative forgone. In this case, if Andrea chooses to go to university full time, she will give up her job and the income of $25,000 per year. Therefore, the total opportunity cost of the four-year university degree is:

Opportunity Cost = (Income she gives up) + (Cost of tuition and living expenses for four years)
Opportunity Cost = ($25,000 x 4 years) + ($12,000 x 4 years) + ($10,000 x 4 years)
Opportunity Cost = $100,000 + $48,000
Opportunity Cost = $148,000

Therefore, the best choice is D as the opportunity cost of Andrea's four-year university degree is $148,000.

Suppose Andrea Has a Job That Pays Her $25 000