1 Lets say you have 2 schools that you can attend with the f

1. Let’s say you have 2 schools that you can attend with the following characteristics. Both schools will give yield the same degree. School A – will costs $10,000 to complete and take 2 years to complete full time. School B – will costs $12,000 to complete and take 1 year to complete full time. After graduating, you will start earning a salary of $5,000 a year full time. Using the concept of opportunity cost, which school is cheaper to attend?

a) School B is cheaper because it will only take you 1 year to complete and you could be working and earning a salary.
b) School A is cheaper because it only costs you $10,000.

Solution

Answer : Option a is correct.

Because school-A takes 2 years and takes a cost of $10,000 whereas school-B takes only 1 year but takes $12,000 for graduation and after completing graduation I earn $5,000 per year. Now if I choose to attend school-A then it takes 1 year more than school-B for completing my graduation and as a result I lose $5,000 earning which makes cost for me and this cost is known as opportunity cost. On the other hand, if I choose to attend school-B then it takes $2,000 extra cost for completing my graduation but it takes 1 year less time then school-A and after completing graduation I earn $5,000. So, for choosing school-B I lose only extra $2,000 but earning $5,000.

Now, if I choose school-A then I lose $5000 and if I choose school-B then I lose only $2000. Therefore, attending school-B is cheaper in comparison to attending school-A.