Question

3. (6pts) Imagine that tickets are on sale to see Billie Eilish performing for $40. But, by a staggering coincidence, you could also go to see Lizzo - there are tickets on sale for $50. You'd be willing to pay $80 to see Lizzo on any given night, and her concert is the best alternative to seeing Billie Eilish. Additionally, the cost of transportation for both events are $15 for Billie Eilish and $5 for Lizzo. Assume there are no other costs of seeing either gig. What is the opportunity cost of seeing Billie Eilish? (a) $80 (b) 840 (c) $55 (d) $85

Answer 1

Opportunity cost is the value of the next-highest-valued alternative use of that resource.

Billie Eilish performing for $40

Lizzo performing for $50

willing to pay $80 to see Lizzo on any given night

cost of transportation for both events are $15 for Billie Eilish and $5 for Lizzo.

Opportunity cost of watching a billie eilish concert is the money spent on billie eilish concert and the pleasure i forgo for not going to Lizzo concert

Money spent of bille eilish concert = $40 on ticket + $ 15 on transportation = $55

I value the lizzo concert at $ 80; so the pleasure i forgo for not going to Lizzo concert is $ 80

but there are transportation and ticket cost for the lizzo concert which would cost me $50 + $ 5 = $55

the pleasure which i forgo for not going to lizzo concert = $80 -$ 55 = $25

Therefore, Opportunity cost of watching a billie eilish concert is $ 80 (55+25)