Question

Linda decides to spend four hours working rather than watching a video with her friends. She earns $15 an hour. Her opportunity cost of working is the $60 she earns working. the $60 minus the enjoyment she would have received from watching the video. O the enjoyment she would have received had she watched the video nothing,since she would have received less than $60 of enjoyment from the video.

Answer 1

Solution:

Correct answer: Option (c)

Linda has a choice between working for 4 hours or watch a video with her friends. Since her wage rate is $15 per hour, by working for 4 hours she can earn a total income of 4*15 = $60.

Opportunity cost is the cost or value foregone , received from some alternative activity or task due to undertaking some other activity.

To find opportunity cost of working, we need to know the value she could have received, had she taken up the alternative, that is, value she would have got had she watched video with her friends, instead of working. Thus, correct option is (c) the enjoyment she would have received, had she watched the video.

Why other options incorrect:

Option (a) is the opportunity cost of watching the video (refer to the opportunity cost definition as given above)

Option (b) is the extra value benefit of working over watching the video.

Option (d) is again the extra benefit value. Further, we do not know whether watching video generates value of less than $60, as nothing is mentioned regarding that in the question.

Thus, none of these 3 options represent opportunity cost.