Answer to Question #123534 in Microeconomics for Nguyễn Huỳnh Khánh Trúc

Question

You have a free ticket to see Miss A in concert, this ticket having no resale value. EXO is performing on the same night, which is your second‐best alternative. The EXO ticket costs $180, and on any given day you would be willing to pay up to $190 to see EXO. Assume there are no other costs of seeing either performer.
a. Assuming you could not get the EXO ticket for free what is your opportunity cost of your seeing Miss A? Explain your answer.
b. Now assume you could get the EXO ticket for free, what is your opportunity cost of your seeing MissA? Explain your answer.
c. Suppose your third best alternative is to watch a EXO DVD at home, to which you place a monetary value of $10, and the DVD rental is $5. How will this affect your answers above?

Answer 1

a,

If you go to the Miss A concert you give up a benefit of $190 (willingness to pay to see EXO). But you save the $180 for the ticket. Therefore, the opportunity cost is 190 – 180 = 10. There is no such thing as “free lunch”.

b,

If you also got the EXO ticket for free, then your opportunity cost of seeing Miss A would be $190 which is higher than before.

c,

The 3^rd alternative will NOT affect your answers. Only the second best option is taken into account when you calculate the opportunity cost.