Question

If you spend the next hour working at Canadian Tire, you will earn $10. If instead you spend the next hour studying economics, your next test score will improve by five marks. Calculate the opportunity cost of studying in terms of dollars given up per mark. Calculate the opportunity cost of working in terms of marks given up per dollar.

Answer 1

Opportunity cost =$\frac{Give Up} {Get}$

The opportunity cost of studying for one hour is the $10, you give up from not working. Each hour gives 5 marks on the test.

Then the opportunity cost of each additional mark is;

= $\frac{10} {5 marks}$ = $2 per mark.

The opportunity cost of working forone hour is the 5 extra marks you give up by not studying.Thus the opportunity cost of each additional dollar is;

= $\frac{5 marks} {10} = ½ mark$ per dollar.