Question

PLEASE HELP WITH THIS ECONOMICS ASSIGNMENT
This lesson examines many concepts, including opportunity costs. For this discussion, you will write a brief scenario that describes opportunity costs.

For example:

After working weekends for the past three years, Janet has saved $7,000. Her goal is to buy a new 90-inch HD television. Before she buys the TV, she is offered an opportunity to travel with her best friend to Australia and New Zealand. The trip will cost about $7,000.

Janet’s opportunity costs are either missing out on purchasing a new television (if she chooses to travel) or forgoing her plan to purchase a television (if she travels abroad).

Now, write your own scenario that illustrates opportunity costs.

Answer 1

A scenario that illustrates the concept of opportunity costs is when Gilbert works at an annual salary of $60,000 or he starts a business.

What is an illustration of opportunity costs?

The store owned by Gilbert could have been rented out at an annual lease of $15,000.  If Gilbert's store generates annual revenue of $200,000 with a cost of goods worth $100,000 and selling and administrative expenses that cost him $25,000 annually.

If Gilbert chooses to open the store, his economic gain from running the business will be $20,000 ($200,000 - $80,000 - $25,000 - $15,000 - $60,000).

Whereas, if he chooses employment as an accountant, his economic profit will be $75,000 ($60,000 + $15,000).

Thus, based on the concept of opportunity costs, which gives rise to economic profit, Gilbert will be advised to take up employment instead of starting his own business.

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