Homework Ch 01 2 Determining opportunity cost Juanita is dec

Homework (Ch 01) 2. Determining opportunity cost Juanita is deciding whether to buy a skirt that she wants, as well as where to buy it. Three stores carry the same skirt, but it is more convenient for Juanita to get to some stores than others. For example, she can go to her local store located 15 minutes away from where she works, and paya marked-up price of $102 for the skirt: price price Juanita\'s office Original price Store Local Department Store Across Town Neighboring City Travel Time Each Way (Minutes) 15 Price of a Skirt (Dollars per skirt) 102 85 76 60 Juanita makes $42 an hour at work. She has to take time off work to purchase her skirt, so each hour away from work costs her $42 in lost income Assume that returning to work takes Juanita the same amount of time as getting to a store and that it takes her 30 minutes to shop. As you answer the following questions, ignore the cost of gasoline and depreciation of her car when traveling

Solution

Calculate total cost of skirt from local department store -

Total cost = Price of skirt + Opportunity cost of time

Total cost = $102 + $42 = $144

Calculate total cost of skirt from store across town -

Total cost = Price of skirt + Opportunity cost of time

Total cost = $85 + $63 = $148

Calculate total cost of skirt from store in neighboring city -

Total cost = Price of skirt + Opportunity cost of time

Total cost = $76 + $105 = $181

Following is the complete table -

Across Town

Assume that Juanita takes opportunity costs and price of the skirt into consideration when she shops. Juanita will minimize cost of the skirt if she buys it from the Local department store .

Store	Opportunity cost of time	Price of a skirt	Total cost
Local department store	$42	$102	$144
Across Town	$63	$85	$148
Neighboring City	$105	$76	$181