Question

Tom Richards, a local doctor, decides to play a round of golf on Wednesday afternoon. The round of golf will take Dr. Richards five hours to complete (including travel time to and from the course). The out of pocket expenses for the green fees, lost golf balls, cart rental, gas expense, and tips to the bag boys total $80. A healthy lunch at the course, which he eats everyday, cost him $20. Dr. Richards earns $100 per hour at his practice. What is the opportunity cost of Dr. Richards’ Wednesday afternoon golf outing

a. $80
b. $100
c. $500
d. $580
e. $600

Answer 1

The correct answer is c. $500

Step-by-step explanation:

The cost of opportunity is the best alternative that you sacrifice when you choose an option.

It represents the benefits that you miss out on when choosing one alternative over another.

Tom Richards could have earned $100 per hour from going to his practice. Playing golf takes 5 hours, it means that he is sacrificing his 5 hours income from the practice. So, his opportunity cost should be $500.

Answer 2

D.

Step-by-step explanation:

Making a choice-any choice, always has some cost. So by spending a certain amount on item A, we are giving up the opportunity to have item B. For example, by going to college to taking out loans to pay for college you are forsaking the opportunity to work, and earn money. Every time you make an economic choice, there is an opportunity cost to you in terms of what you had to give up, or a trade off.

Opportunity Cost is the income given up by not choosing the next best alternative for the use of the resources. Opportunity costs are never actually incurred and cannot be measured precisely.

In this case, Tom Richards could have earned $100 per hour from going to his practice. Since, playing golf takes 5 hours it means that he is sacrificing his 5 hours income from the practice. So, his opportunity cost should be $500. Moreover, he also spends $80 for his golf practice which he would not have spent in case if he didn't play golf.

A healthy lunch at the course, which he eats everyday, cost him $20. As it is an every day cost, this is not included.