Answer to Question #241956 in Microeconomics for Nicolas

Question

1. Suppose you currently earn $40,000 a year. You are considering a job that will increase your lifetime earnings by $400,000 but that requires an MBA. The job will mean also attending business school full time for two years at an annual cost of $50,000. You already have a bachelor’s degree, for which you spent $150,000 in tuition and books.
2. Which of the above information is relevant to your decision on whether to take the job?
3. What is the opportunity cost of going to school to study MBA?
4. Should you take the job? [Note: You will need to get the MBA]

Answer 1

2) The relevant costs represent the forgone money from the job. The fees for the bachelor’s degree is not relevant since it is a sunk cost. The relevant benefit is the increased lifetime earnings of $400,000.

3) The opportunity cost of going to school to study MBA is the salary of $ 40,000 per year which he will not get.

4) I t is good to take the job since it has a life-time benefits of increased earnings by $ 40,000.