Question

• Alexa is a tennis pro. She made $100,000 in prize money last year, and spent $20,000 on transportation and lodging, and paid $15,000 for a coach. She paid $800 a month in rent and $300 a month in car payments. • Her alternative career path was to work as a tennis instructor and make $75,000 a year. She would spend $7000 on meals, $800 a month rent, and $300 a month on car payments. (Assuming these three payments are the same no matter what her career path turns out to be.) • A) Find her net income from each career path. B) What is the opportunity cost of playing tennis as a pro?

Answer 1

A)

Net Income from the first career path(tennis pro) = 100,000 - (20,000 + 15,000 + 800*12 + 300*12) = $ 51,800

Net Income from the second career path (tennis instructor) = 75,000 -(7000 + 800*12 + 300*12) = $ 54,800

B)

Opportunity Cost of playing tennis as a pro = Difference in the net income between tennis pro and instructor

= (54,800 - 51,800 ) = $ 3000 per year