Question

Kamryn is deciding between three potential activities on Saturday evening: 1) Staying at home and watching her favorite television show, an activity that she values at $18 and that entails no out-of-pocket costs. 2) Going to the movies with her sister to see the latest blockbuster action film, an activity she values at $30 and that entails $15 in out- of-pocket costs. rded 3) Going out to dinner with her best friend, an activity she values at $40 and that entails $23 in out-of pocket costs a) Which activity should Kamryn choose? Staying at home and watching her favorite show Going to the movies with her sister Going out to dinner with her best friend b) What is Kamyn's opportunity cost of going to the movies? Instructions: If you are entering a negative number, be sure to inciude a negative sign ( S18 cl Relative to her next best alternative what is Kamyn's economic surolus trom going to the movies?

Answer 1

Calculate the worth of option that are provided as follows: Staying back at home and watching her favorite television worth her $18 Going for a movie will worth her $15 (30-15). Going out for a dinner will worth her $17 (40-23). Among the following person K receives highest worth from staying at home and watching her favorite television show. Thus, the activity that person K should choose is staying at home and watching her favorite show! Calculate the opportunity cost of going to the movies as follows: Opportunity cost = Worth of staying back at home + Amount that is spent on movie = 18+15 = $33 Thus, the opportunity cost of going to the movies is $33). c) Calculate the economic surplus as follows: Economic surplus = Benefit received - Opportunity cost =30-33 Thus, the economic surplus is $3.