Question

Question 1: Opportunity Cost It is estimated that over 100,000 students apply to the top 30 MBA programs in the US eaclh year. Answer the following three questions in 1-2 sentences (1) (2 points) Using the concept of opportunity cost (you may need to refresh this with a quick search), what can we conclude about these applicants? (2) (2 points) The average tuition for the top 30 programs is around $58,000 per year, totalling over $116,000 for two years. Using the concept of Net Present Value, what can we conclude about these applicant's beliefs about their future salary? (3) (4 points) What would you expect to happen to the number of applicants if the starting salaries of managers with MBA degrees remained constant, but the salaries of managers without MBA degrees decreased by 20%?

Answer 1

1) using the concept of opportunity cost we can say that the opportunity cost of doing MBA is definitly less than the other alternatives available because as we know people always try to do things where the opportunity cost is minimum that is the next best alternative cost forgone is minimum.

2) as we know net present value is the present value of an investment's net capital flow in the future minus the cost of it. we use net present value criteria while taking any investment decision. here the total cost of tution is 116000$ per 2year so if any student wants to join the course then they must be expecting a salary which is worth more than the tution fee if future. and the salary at present value must be higher than the tution fee.

3)if the starting salaries of managers without MBA degrees decreases by 20% then it is expected that the application for MBA will increase because everyone will now expect to get a MBA degree now because opportunity cost of MBA is less and opportunity cost of not having MBA degree is way more.