A student has a job that pays a wage rate of $10 per hour. The night before an economics exam, the student has set aside four hours to study for the exam, estimating that for each hour spent studying, her grade will rise by 5 points. That night, she gets a call from her employer to come to work for a wage rate of $15 per hour for that night. She decides to work for three hours and earn an extra $45.00. The next day she takes the test and gets a grade of 75. The opportunity cost for her work is
A) the $45.00 she earned.
B) the 15 extra points she estimates that she could have earned on the exam if she had studied the extra three hours.
C) the three hours she did not study.
D) the entire four hours she set aside for studying.

Question

Quizplus · Accepted Answer

The opportunity cost is the value of the next best alternative that is forgone. In this case, the student chose to work for three hours instead of studying. By estimating that for each hour of studying her grade would increase by 5 points, she gave up the opportunity to increase her grade by 15 points if she had studied for the three hours instead of working. Therefore, the opportunity cost of her work is the 15 extra points she could have earned on the exam if she had studied for the extra three hours. The $45.00 she earned is not the opportunity cost because it is a benefit, not a cost. The three hours she did not study is also not the opportunity cost because it is the action she took, not a cost. The entire four hours she set aside for studying is not the opportunity cost because she did use one hour to study.

A Student Has a Job That Pays a Wage Rate