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One question about opportunity cost?

  • i) You won a free ticket to see an Eric Clapton concert (which has no resale value). Bob Dylan is performing on the same night and is your next-best alternative activity. Tickets to see Dylan cost $40. On any given day, you would be willing to pay up to $50 to see Dylan. Assume there are no other costs of seeing either performer. Based on this information, what is the opportunity cost of seeing Eric Clapton? A. $0 B. $10 C. $40 D. $50 (Circle) ii) You won a free ticket to see an Eric Clapton concert (which has a resale value of $10). Bob Dylan is performing on the same night and is your next-best alternative activity. Tickets to see Dylan cost $40. On any given day, you would be willing to pay up to $50 to see Dylan. Assume there are no other costs of seeing either performer. Based on this information, what is the opportunity cost of seeing Eric Clapton? ________ So my opinion is that, for both questions: it says "Tickets to see Dylan cost $40. On any given day, you would be willing to pay up to $50 to see Dylan", however there is no evidence showing that tickets for Dylan's show would be $50 in the future, so the answers should both be $0. But I think this is not right. So what's wrong ?

  • Answer:

    For the first one, it seems like the opp. cost of seeing Clapton would be $10. Because you value Dylan's at $50, but you would have to pay $40. By seeing Clapton, you forgo seeing Dylan. The answer is definitely not $40 (that's a cost you'd have to pay...not a benefit forgone) or $0. For the second one I think the answer is $40. Because you see Clapton, which has a resale value of $10. So first, you give up $10. But then you value Dylan's at $50. 50 - 10 = 40. I'm not so sure about this question as I am for question 1. BTW, it doesn't matter what Dylan's show costs in the future....you just value it at that much. It's a personal valuation. EDIT: Actually, yes that makes sense if it's $20. Sorry for the confusion. Sometimes the wording can be tricky...

Sherrype... at Yahoo! Answers Visit the source

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for i you would rather see Dylan and pay up to $50 but the price is $10 cheaper 50-40= $10. You instead see Eric which is free. the answer would be B $10 because seeing Dylan you missed the chance to see Eric which offered $10 less than what you would pay for.

Jason Santos

I think that for i), the concert ticket should be worth $40; although you can pay $50, the current price is $40, so that's the maximum you have to pay. Opportunity cost talks about using the same resources for two same products. So, the opportunity cost of seeing Clapton is $40. This is assuming that social welfare is not taken into account. For ii), the basic process is the same. the ticket's cost is $40. It doesn't matter how much you can pay, since it's just worth $40. However, the Eric Clapton concert is worth $10 if you don't watch it. So, if you watch Dylan, you will spend $30. That's the opportunity cost to watch Clapton

KJ

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