Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfares are $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfares are $450. What is the opportunity cost of using the coupon for the Miami trip?

Question

Quizplus · Accepted Answer

The opportunity cost of using the coupon for the Miami trip is the value of the coupon that would be foregone by using it for the Miami trip instead of the Atlanta trip.

If the coupon is used for the Miami trip, the total cost of the trip would be $1100 ($600 airfare - $500 coupon + $900 other costs). If the coupon is not used for the Miami trip, the total cost of the trip would be $1400 ($600 airfare + $900 other costs).

If the coupon is saved for the Atlanta trip, the total cost of the trip would be $450 (Atlanta airfare).

Therefore, the opportunity cost of using the coupon for the Miami trip is $500 ($450 saved on the Atlanta trip - $50 saved on the Miami trip).

Since the most the individual is willing to pay for the Miami trip is $1400, and the total cost with the coupon is $1100, it is the best choice to use the coupon for the Miami trip.

Your Classmates from the University of Chicago Are Planning to Go