HelloI would like a detailed and clear understanding of "opportunity cost" and how to calculate.The text within the book is vague and I can not visuallize of otherwsie relate it to real world scenario despite us all having done this throughout our lives.In some instances it seems the cost is more emotional or subjective rather than financial or math based but again there are times when questions seem to be answered in a dollars and sense fashion.Example 1: (Opportunity Cost) You can either spend spring break working at home for $80 per day for five days or go to Florida for the week. If you stay home, your expenses will total about $100. If you go to Florida, the airfare, hotel, food and miscellaneous expenses will total about $700. What’s your opportunity cost of going to Florida?In example 1 I assume the opportunity cost of going to florida would be $1000 (lost income + travel expenses = OC)However in the following example it seems more subjective:Example 2: Jenn won a free ride to four years of college. During these four years Jenn could also do any number of things, including:I. Travel the world.II. Work to gather savings and career experience.III. Become an expert oboist. Desired Outcome: I need to understand how to calculate opportunity cost (step by step) regardless of how the question is worded, right now I am guessing and the text doesnt provide clear guidance. The text book being used is Macro Econ 6, chapter 2 Thannk you.

Question
Asked Sep 11, 2019
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Hello

I would like a detailed and clear understanding of "opportunity cost" and how to calculate.

The text within the book is vague and I can not visuallize of otherwsie relate it to real world scenario despite us all having done this throughout our lives.

In some instances it seems the cost is more emotional or subjective rather than financial or math based but again there are times when questions seem to be answered in a dollars and sense fashion.

Example 1: (Opportunity Cost) You can either spend spring break working at home for $80 per day for five days or go to Florida for the week. If you stay home, your expenses will total about $100. If you go to Florida, the airfare, hotel, food and miscellaneous expenses will total about $700. What’s your opportunity cost of going to Florida?

In example 1 I assume the opportunity cost of going to florida would be $1000 (lost income + travel expenses = OC)

However in the following example it seems more subjective:

Example 2: Jenn won a free ride to four years of college. During these four years Jenn could also do any number of things, including:

I. Travel the world.

II. Work to gather savings and career experience.

III. Become an expert oboist.

 
Desired Outcome: I need to understand how to calculate opportunity cost (step by step) regardless of how the question is worded, right now I am guessing and the text doesnt provide clear guidance.
 
The text book being used is Macro Econ 6, chapter 2
 
Thannk you.
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Expert Answer

Step 1

As there is no specific defined mathematical formula for calculating opportunity cost, but one can think of opportunity cost in a mathematical way.

Opportunity cost: It refers to the cost of the next best alternative whic...

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