Whenever you decide to do something, you are probably giving up an opportunity to do something else (e.g. If you go to school, you may not be able to work. If you grow corn, you may not be able to grow tobacco). Opportunity cost is defined as the value of the best alternative that you forfeit by doing something else. For instance, if you could work and earn $18,000 a year but you decide to go to school, your opportunity cost of attending school is $18,000.

 When opportunity cost is used in decision making, it is important to consider all costs and benefits. For example, if a college professor could earn $55,000 a year teaching or $65,000 a year working in industry, his opportunity cost of teaching is $65,000. Looking at only opportunity cost, it appears that the college professor should leave teaching for industry, but this decision cannot be made without considering the non-monetary benefits of teaching. Compared to industry, teaching has more job security, more leisure time, more challenges, less stress, and less political structure - all of which increase the utility from teaching. In deciding whether to teach or work in industry, the college professor should determine if his total benefits from teaching, monetary and non-monetary, exceed his opportunity cost of teaching. The professor should leave teaching for industry only if his opportunity costs of teaching exceed his total benefits of teaching.

 Application:

 1. What is a likely candidate for the opportunity cost of raising corn?

 a) The value of operating an amusement park in Paris, France.

b) The value of stock car racing with Richard Petty’s old pit crew.

c) The value of raising soybeans.

d) The value of installing Otis elevators in Chicago, Illinois.

2. What is a likely candidate for the opportunity cost of selling insurance?

a) The value of being a physician at Dade County Regional Hospital.

b) The value of raising corn.

c) The value of playing a tenor sax in the North Carolina Symphony.

d) The value of managing Wal-Mart.

3. If you have a job that pays $25,000 per year in your hometown of Spivey’s Corner, North Carolina and you are offered a job in Denver, Colorado that pays $40,000, what is your opportunity cost of working in Spivey’s Corner?

a) $ 5,000 c) $25,000

b) $15,000 d) $40,000

4. In reference to question 3, should you take the job? Why or why not?

5. In reference to question 4, if you decide not to take the job in Denver, Colorado, what is the value of the non-monetary benefits of working in Spivey’s Corner, North Carolina?

a) $ 5,000 c) > $15,000

b) $10,000 d) $25,000

6. Assume that you grow tobacco. If you did not farm, you could earn $15,000 per year working at a garden center, $17,000 per year working as an assistant to your brother- in- law who is a plumber, or $12,000 during the spring and summer working as a carpenter and $7,000 during the fall and winter storing travel trailers for a local campground and selling oysters. What is your opportunity costs of growing tobacco?

a) $ 7,000 d) $17,000

b) $12,000 e) $19,000

c) $15,000

7. In reference to question 6, what is your opportunity cost of working as a carpenter during the spring and summer and storing travel trailers for a local campground and selling oysters during the fall and winter?

a) $ 7,000 d) $17,000

b) $12,000 e) $19,000

c) $15,000

8. What are the non-monetary benefits of growing tobacco, of working as a plumber’s assistant, and of working as a carpenter during the spring and summer and storing travel trailers for a local campground and selling oysters during the fall and winter?

9. In reference to questions 6 to 8, which job is best for you? Why?

10. Assume that you live and work in Spruce Pine, NC and that you are offered a job at Wrightsville Beach that pays the same salary as your present job. As far as you are concerned, the differences between living in the mountains and living at the beach are that the beach is hotter and has higher humidity, which you dislike, and that the beach allows you to pursue your favorite sport of surfing. If you decide to work at Wrightsville Beach, which statement is likely to be true?

a) The beach has more sand than the mountains.

b) The non-monetary costs of high temperatures and humidity is greater than the non-monetary

benefits of surfing.

c) The non-monetary costs of high temperatures and humidity is less than the non-monetary

benefits of surfing.

d) You prefer shrimp to boiled peanuts.