Solution for Managerial Economics 4th Edition Chapter 3, Problem 1

by Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
147 Solutions 23 Chapters 104186 Studied ISBN: 9781305259331 5 (1)

Chapter 3, Problem 1 : 3-1 Concert Opportunity Cost You won...

3-1 Concert Opportunity Cost

You won a free ticket to see a Bruce Springsteen concert (assume the ticket has no resale value). U2 has a concert the same night, and this represents your next-best alternative activity. Tickets to the U2 concert cost \$80, and on any particular day, you would be willing to pay up to \$100 to see this band. Assume that there are no additional costs of seeing either show. Based on the information presented here, what is the opportunity cost of seeing Bruce Springsteen?

3-1 \$20. Opportunity cost is the value of your next best alternative. In this case, your next best alternative is attending the U2 concert. Your value for this alternative is \$100 with a corresponding cost of \$80 leaving a net value of \$20.

Note: This question is adapted from Paul J. Ferraro and Laura O. Taylor (2005) "Do Economists Recognize an Opportunity Cost When They See One? A Dismal Performance from the Dismal Science", Contributions to Economic Analysis & Policy: Vol. 4: No. 1, Article 7.