Zack quits his job at a consulting firm, which pays $40,000 a year, to enroll in a two-year graduate program. His annual school expenses are $30,000 for tuition, $2,000 for books, and $600 for food. What is his opportunity cost of attending the two-year graduate program

$144,000

Explanation:

Given that

Salary = 40,000

Tuition = 30,000 per annum

Books = 2000 per annum

Recall that

Opportunity cost refers to the loss of other alternatives when one of those listed alternative is chosen. It refers to the benefits or cost an individual misses out on when choosing one alternative over the other. In this case, Zack chose school over work.

Thus opportunity cost for those 2 years

= (40,000 × 2) + (30,000 × 2) + (2000 × 2)

= 80000 + 60000 + 4000

= $144000

NOTE that, food is not added, because regardless of what alternative he picks, it is added as food is necessary for life.

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