Individual Report

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AF3625 Engineering Economics Written Assignment Name: Ren Chen Student number: 14019109X Lecturer: Dr. Alice Shiu Tutor: Dr. Esther Shea Tutorial day & time: Friday 13:30 Group: 1 Questions: 1.1, 1.4 Number of words: 737 Submission deadline: 7 October 2014 Individual report Question 1.1 “According to the definition of opportunity cost, the more alternatives we have given up in undertaking an action, the higher the opportunity cost.” Please make a critical comment on this statement and explain your answer using examples. Answer: The statement above has confused the nature of opportunity cost. As defined in the lecture slide, “The opportunity cost of an action is the value of the next-best alternative that must…show more content…
The two taxi rides will cost you a total of $60. If you go to the tuition lesson as usual, you will spend only $30 on your dinner and you can walk to your student’s home. Assuming you are rational and there is no other cost you need to consider, what would you have to be the minimum benefit you can get from the dinner and the concert to make you willing to go out with you friend tonight? Answer: The question is about the minimum benefit we get from the dinner and the concert that will make me to go out with my friend. From the case, we can clearly find that the benefit and the cost of both situations. I have made a table to compare the two choices with each other. Give a tuition Go to a concert +$ 200 earning -$500 ticket -$ 30 dinner -$100 dinner -$60 taxi We know that the opportunity cost is a cost associated with a decision that includes both the explicit and implicit costs. Opportunity cost= explicit cost+ implicit cost The implicit cost is the cost connected with an alternative while the explicit cost is accounting cost of making a decision, which represents clear, obvious outflows from a business. In this case, the implicit cost is equal to $170($200-$30=$170) and the explicit cost is $660($500+$100+$60=$660). Thus, the whole opportunity cost of going the concert with my friend is $830($170+$660=$830). If the benefit of going to the concert is more than the opportunity cost, I will

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