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Subject: opportunity costs calculation
Message:
Hi,
I have a doubt regarding calculation of opportunity costs in various scenarios:

Suppose , I have to choose amongst 3 alternatives:
-- going to the beach which I value at $40.
--washing my car which I value at $20.
--going out with a friend which I value as $60.

what will be the opportunity cost of going out with a friend??


In my opinion , it should be equal to sum of alternatives left out i.e going to the beach at $40 + washing car at $20 but this is not correct.

Can someone explain how opp cost should be calculated in this scenario??

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Pushpendra Dwivedi Posted: Sunday, October 29, 2017 3:50:50 PM(UTC)
 
I think the opportunity cost in this case should be $40 as opportunity cost is the cost of next most valued thing you are giving up.
Geetika Posted: Monday, October 30, 2017 9:07:57 AM(UTC)
 
Thanks Pushpendra,
and in case i choose the option of going out with a friend which is valued at $ 40, in that case will the opportunity cost be $60 or $20??
Shruti Arora Posted: Tuesday, October 31, 2017 2:39:58 PM(UTC)
 
in the question, value of going out with friends is $60

If your question is to choose first option which is of value $40 i.e. going to the beach then the opportunity cost would be $60 i.e. going out with friends, which is the next most valued option you are giving up to go to the beach.
pgpm2018.vaibhav@spjimr.org Posted: Wednesday, November 1, 2017 7:26:35 AM(UTC)
 
well in terms of "COST VALUE" of opportunity cost, below is the formula, which i have found on one of the website...

Opportunity Cost = Return of Most Lucrative Option - Return of Chosen Option (source: http://www.investopedia....ms/o/opportunitycost.asp)

Hence, in your case(as per your perspective) most valued option is going out with the friend

Therefore below will be the opportunity cost for chosen appropriate options

1.Going out with friend : 0 (Best - selected = 60-60)
2. Washing car : 40 (Best - selected = 60-20)
3. Going to beach : 20 (Best - selected = 60-40)

0 Opportunity cost states that you have chosen best option..

PS: i could not understand inpods formula and that's why had to hunt on google for ans
not sure whether formula is correct or what
inpodssa@spjimr.org Posted: Thursday, November 2, 2017 3:51:41 PM(UTC)
 
All participants, do post these queries on Inpods web module. The faculty is very much there to help you all. He will not reply here.