Wk 1 Quiz
2. Determining opportunity cost
Juanita is deciding whether to buy a skirt that she wants, as well as where to buy it. Three stores carry
the same skirt, but it is more convenient for Juanita to get to some
...
Wk 1 Quiz
2. Determining opportunity cost
Juanita is deciding whether to buy a skirt that she wants, as well as where to buy it. Three stores carry
the same skirt, but it is more convenient for Juanita to get to some stores than others. For example, she
can go to her local store, located 15 minutes away from where she works, and pay a marked-up price of
$105 for the skirt:
Store
Travel Time Each Way
Price of a Skirt
(Minutes)
(Dollars per skirt)
Local Department Store 15 105
Across Town 30 88
Neighboring City 60 65
Juanita makes $20 an hour at work. She has to take time off work to purchase her skirt, so each hour
away from work costs her $20 in lost income. Assume that returning to work takes Juanita the same
amount of time as getting to a store and that it takes her 30 minutes to shop. As you answer the
following questions, ignore the cost of gasoline and depreciation of her car when traveling.
Complete the following table by computing the opportunity cost of Juanita's time and the total cost of
shopping at each location.
Store
Opportunity Cost of Time
Price of a Skirt
Total Cost
(Dollars)
(Dollars per skirt)
(Dollars)
Local Department Store 20.00Correct 105 125.00Correct
Across Town 30.00Correct 88 118.00Correct
Neighboring City 50.00Correct 65 115.00Correct
Points:
1 / 1
The opportunity cost of driving to each location is what Juanita gives up to make the trip. Getting to the
local store takes her 15 minutes, and returning to work takes her 15 minutes (a total of 30 minutes).
Shopping takes her another 30 minutes. Since she loses $20 per hour by not working, the opportunity
cost of her time is (0.5×$20)+(0.5×$20)=$20. Because the price she pays at this store is $105, she faces a
total cost of $20+$105=$125.
If Juanita buys her skirt at the store across town, the opportunity cost of her time is 90 minutes: 30
minutes each to drive there, shop, and return to work. The price she pays is $88, so she faces a total cost
of $30+$88=$118.
Finally, if Juanita buys her skirt at the store in the neighboring city, the opportunity cost of her time is 2.5
hours: 60 minutes to drive there, 30 minutes to shop, and 60 minutes to return to work. The price she
pays is $65, so she faces a total cost of $50+$65=$115.
Assume that Juanita takes opportunity costs and the price of the skirt into consideration when she
shops. Juanita will minimize the cost of the skirt if she buys it from thestore in the neighboring city
Correct .
Points:
1 / 1
Juanita will base her decision on the total cost of the skirt, including the opportunity cost of the time
required to obtain the skirt and the price of the skirt. In this scenario, she incurs the lowest total cost if
she buys her skirt from the store in the neighboring city.
3. Efficiency in the production possibilities model
Suppose South Africa produces only two goods: alfalfa and blu rays. The following graph shows South
Africa's current production possibilities frontier, along with six output combinations represented by
black points (plus symbols) labeled A to F.
020406080100100806040200BLU RAYS (Millions)ALFALFA (Millions of bushels)PPFAFEDCB
Complete the following table by indicating whether each point represents output combinations that
are inefficient, efficient, or unattainable. Check all that apply.
Point Inefficien
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