Question

Carlos lives in a college town, paying $5,000 a year for his apartment. He is calculating his opportunity cost of getting a BBA degree from the local college. If he goes to the college, he’ll pay $12,000 for tuition and $1,600 for textbooks each year. He'd continue to live in the same apartment and pay the same rent. The rest of his expenses would also be the same no matter whether or not he goes to the college. Carlos is offered a job paying $25,000 per year, which he won't be able to do if he is in college. He expects to graduate in four years. What is Carlos's opportunity cost of getting his BBA degree?

Answer 1

Carlos's opportunity cost of getting his BBA degree is the sum of the explicit cost that he is paying which includes $12,000 for tuition and $1,600 for textbooks annually or 12000*4 + 1600*4 = $54,400 for four years, and the implicit cost which is the forgone salary of $25,000 per year or $100,000 for four years.

Hence, opportunity cost of getting his BBA degree is 54400 + 100000 = $154,400.

We would not add the rent because he pays it even when he is doing a job. Hence its not a part of opportunity cost of getting a degree.