Question

1. Tiger Woods dropped out of Stanford University to pursue a career as a professional golfer. At the time he left the university, he was majoring in finance and would have been employable as a stock broker or financial analyst earning $150,000/year. When he turned pro, he immediately signed an endorsement contract with Nike for $20 million.
a. What was Tiger’s opportunity cost for becoming a professional golfer?
b. Opportunity costs occur when decisions are made. Economists recommend that those decisions be based on what?
c. Are opportunity costs always measured in dollar terms? Explain.
d. You will spend about 90 minutes on this exam. What is your opportunity cost for spending your time in that manner?

2. You plan to attend college. Answer the following questions:
a. What are the explicit (cash out of pocket) costs of attending college? What are the implicit (lost opportunities) of attending college.
b. You will not have any current rock stars or major league ball players attending your classes. Why not?
c. Assuming everyone has equal intelligence, college will still not be the right choice for everyone. Using the concept of opportunity costs, explain why.

Answer 1

1.a) Opportunity cost refers to the cost of next best alternative forgone when a choice is made.Tiger's opportunity cost when he became a professional golf player is the cost of the next best alternative he had given up or sacrificed.Here it is the earning of $150000/year as financial analyst.

1.b)Decisions should be based on the resulting cost and benefits and the opportunity cost.

1.c)Opportunity costs are not always measured in dollar terms as it is a subjective concept and changes from person to person and is often measured in real terms.For example the opportunity cost of choosing studying over playing cannot be measured in dollar terms.

1.d)The opportunity cost is the next best alternative that you have given up like watching a movie or having a party etc for the 90 minutes you are attending the exam.