Question

​Pam, Pru, and Pat are deciding how they will celebrate the New Year. Pam prefers to go on a​ cruise, is happy to go to​ Hawaii, but does not want to go skiing. Pru prefers to go​ skiing, is happy to go to​ Hawaii, but does not want to go on a cruise. Pat prefers to go to Hawaii or to take a​ cruise, but does not want to go skiing. They decide to go to Hawaii.
What is the opportunity cost of the trip to Hawaii for each of them?

A. The opportunity cost for each of them is the airfare to Hawaii
B. The opportunity cost for Pam and Pat is a cruise and for Pru it is skiing
C. The opportunity cost for Pam and Pat is the airfare to Hawaii minus the cost of a cruise and for Pru, it's the airfare minus the cost of a ski trip
D. The opportunity cost for each of them is the airfare to Hawaii minus the cost of a cruise

Answer 1

Answer: Option (b) is correct.

Explanation:

Opportunity cost is the benefit that is foregone for an individual by choosing one alternative over other alternatives available to him.

If the opportunity cost is lower for an individual then this will benefit him whereas if the opportunity cost is higher then this will not benefit the individuals.

The preferences of Pam, Pru and Pat are given. Therefore, according to their preferences, the opportunity cost of the trip to Hawaii for Pam and Pat is a cruise and for Pru is a skiing.