Question

You have two choices for how you are going to spend Saturday evening. You can go to the pub with your friends, which will cost you £30 for the evening. The pleasure you anticipate from this experience is worth £50 to you. Or you can go to the theatre The ticket will cost you £50, but you value the experience at £60. Based on this information, which of the following statements is correct?
a. Based on economic rent alone, you would definitely choose to go to the theatre.
b. The economic cost of going to the pub is £40.
c. The economic rent of going to the pub is £0.
d. The opportunity cost of an evening at the pub is £60.

Answer 1

Answer:

b. The economic cost of going to the pub is £40.

Explanation:

The correct option is - b. The economic cost of going to the pub is £40.

Reason -

Economic cost = Cost actually incurred to choose an option + opportunity cost

Now,

We know that

Opportunity cost is the value of next best alternative forgone.

Now,

Net benefits while the person going to Pub = 50 - 30 = £20

Net benefits while the person going to Theatre = 60 - 50 = £10

So,

The opportunity cost = £20 - £10 = £10

∴ we get

Economic cost of going to the Pub= £30 + £10 = £40