Question

Paul earns $90/hour as a landscaper and usually works eight hours each day. Paul's employer offers him a $5 per hour raise if he will work his normal hours this Saturday. He is considering taking the day off to rest.

What is Paul’s opportunity cost of taking the day off from work?

Answer 1

$760 ( i.e. a $40 increase to his normal wage)

Explanation:

1. firstly let's define opportunity cost.

Opportunity cost can simply be referred to as the benefit that a person could have received, but gave up, to take another course of action.

so we want to calculate, how much he would lose by taking time off on saturdays.

2. Daily paul works 8 hours.

He's paid $90 per hour on a normal day.

so on a normal day, Paul earns = $90/hr × 8 hrs

$720 a day.

3. But he's offered extra $5 per hour so 90 + 5 = $95

so he'd earn $95/hrs × 8hrs = $760

now what's the difference ?

$760 - $720 = $40

or simply do $5 × 8 = $40

So Paul would have earned $40 ($760) extra if he worked that saturday. But if he took the day off, then he'd be paid NOTHING