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Determining opportunity cost- Suppose that Ciana is deciding whether or not to buy a pair of boots that she has been researching online

Suppose that Ciana is deciding whether or not to buy a pair of sneakers that she has been researching online, and also the best place to make her purchase. Three different stores in the area sell the sneakers she likes, but some stores are more convenient for Ciana to reach than others. One option is her local shoe store located only 15 minutes away from where she works, where they charge a marked-up price of $112 for the sneakers:

A map of an area that displays Ciana's office and three stores. The store with the marked-up price is the closest to Ciana's office toward the northwest. The discounted price store is the farthest and it is toward the northeast of Ciana's office in a different area, and the store with the original price is towards the east of Ciana's office (across the river).
StoreTravel Time Each WayPrice of a Boots
(Minutes)(Dollars per boots)
Local Shoe Store15112
Different Neighborhood in Town30103
Rural Outlet6073

Ciana earns an hourly wage of $58 at her job. In order to purchase her sneakers she will have to take time off work, so each hour away from her job costs her $58 in lost income. Assume that Ciana’s travel time is the same each way (to and from the store) and that it will take her 30 minutes once she reaches a store to complete her shopping. Assume throughout the question that Ciana incurs no additional costs other than the sneakers, such as gas.

Complete the following table by computing the opportunity cost of Ciana’s time and the total cost of shopping at each location.

StoreOpportunity Cost of TimePrice of a BootsTotal Cost
(Dollars)(Dollars per boots)(Dollars)
Local Shoe Store112
Different Neighborhood in Town103
Rural Outlet73

Assume that Ciana considers both her opportunity costs and the price of sneakers when making her shopping decision. Ciana will minimize her cost of buying the sneakers if she shops at the_________________

Answer:

Determining opportunity cost- Suppose that Ciana is deciding whether or not to buy a pair of boots that she has been researching online
Determining opportunity cost- Suppose that Ciana is deciding whether or not to buy a pair of boots that she has been researching online

Explanation

The opportunity cost of driving to each location is what Ciana gives up to make the trip. Getting to the local shoe store takes her 15 minutes, and returning to work takes her 15 minutes (a total of 30 minutes). Shopping takes her another 30 minutes. Since she loses $58 per hour by not working, the opportunity cost of her time is (0.5×$58)+(0.5×$58)=$58

Because the price she pays at this store is $112, she faces a total cost of $58+$112=$170

If Ciana buys her sneakers at the store in the different neighborhood in town, the opportunity cost of her time is 90 minutes: 30 minutes each to drive there, shop, and return to work. The price she pays is $103, so she faces a total cost of $87+$103=$190

Finally, if Ciana buys her sneakers at the store in the rural outlet, the opportunity cost of her time is 2.5 hours: 60 minutes to drive there, 30 minutes to shop, and 60 minutes to return to work. The price she pays is $73, so she faces a total cost of $145+$73=$218

Ciana will base her decision on the total cost of the sneakers, including the opportunity cost of the time required to obtain the sneakers and the price of the sneakers. In this scenario, she incurs the lowest total cost if she buys her sneakers from the local shoe store.

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