Answer to Question #228691 in Microeconomics for Graylin Lapi

Question

a)     John is an economist working for Ministry of Tourism in Suva, earning $30,000 per year. There are, say, three alternative careers available for John. He can work for Reserve Bank or Ministry of Economy in Suva for $25,000 and $28,000 per year respectively. Still another alternative is that he can set up his own economic consultancy firm, expecting to make a profit of $27,500 a year for himself. What is John’s opportunity cost of working in Ministry of Tourism?

 

Answer 1

Opportunity cost refers to the cost of next best alternative forgone.

When choosing a particular good or economic activity, the individual has to forego the other choices, the benefit that can be incurred from second best alternative is the opportunity cost.

Out of three choices, the best alternative is work in Ministry of Economy in Suva and earn $28000 per year.

Therefore, the opportunity cost for John is $28000.