Question

Consider the following. Joe is deciding whether to go to college full time. If he does not attend college, he will continue to work at his current job. At which Joe earns $14,000 annually. He estimates that tuition and fees at the local public college will be about $10,000 per year and that he can graduate in four years if he does not work. He estimates he will earn about $600,000 more in his working lifetime with a college degree than without one.

Required:
a. What will be Joe’s opportunity cost of four years of college?
b. What will be his net benefits (benefits minus costs)?
c. Should he make the investment in education?

Answer 1

Answer:

a. What will be Joe’s opportunity cost of four years of college?

the opportunity cost of going to college is the money that he will lose by not being able to work = $14,000 x 4 = $56,000

b. What will be his net benefits (benefits minus costs)?

net benefits minus costs = $600,000 - $56,000 - $40,000 = $494,000

c. Should he make the investment in education?

Yes, he should. The net benefits of going to college are positive, meaning that going to college will increase Joe's wealth.