Question

You have one scarce hour to spend between studying for an examination or taking classes in a tutorial for Rs. 200 per hour. You choose to study for examination. What is the opportunity cost of studying?

Answer 1

Answer:

• The two alternatives here are to spend one hour studying for an examination to spend one hour taking classes in a tutorial for Rs. 200 per hour.
• When alternative of studying for an examination is chosen then the next best alternative is taking classes in a tutorial. 
• Opportunity cost is the benefits that are sacrificed when next best alternative i.e. taking classes in a tutorial is not chosen.
• The benefit of taking the classes in tutorial for one hour are earning Rs. 200
• The benefits of taking classes in a tutorial are sacrificed i.e. earnings of Rs. 200 are sacrificed and thus Rs. 200 becomes the opportunity cost when we choose to spend one hour studying for examination.
• Opportunity cost = Rs. 200