Question

After the concert discussed in Problem 2-3 is over and you and your friend are traveling home, you discuss how each of you might otherwise have used the four hours devoted to attending the concert. The four hours could have been used to study, to watch a sporting event on TV, or to get some extra sleep. Your friend decides that if she had not spent four hours attending the concert, she would have chosen to study, and you reply that you otherwise would have watched the televised sporting event. Identify the relevant opportunity costs for you and your friend for allocating your four hours to attending the concert. Explain briefly.

Answer 1

Opportunity cost arises as resources are scarce and human wants are unlimited. Here scarce resources are time and money invested in concert. Opportunity cost is measured by the value of the next best alternative of the choice made. My friend could have used the four hours studying instead of watching concert. She sacrificed 4 hours of study for the concert. her opportunity cost is the 4 hours of study she sacrificed. My opportunity cost is the time I sacrificed not watching the televised sporting event.