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Chapter 2: Problem 6

A doctor carns \(\$ 250,000\) per year, while a professor carns \(\$ 40,000\). They play tennis against cach other cach Saturday morning, cach giving up a morning of relaxing, reading the paper, and playing with their children. They could each decide to work a few extra hours on Saturday and carn more income. But they choose to play tennis or to relax around the house. Are their opportunity costs of playing tennis different?

Short Answer

Expert verified
Explain your answer. Answer: Yes, the opportunity costs of playing tennis for the doctor and the professor are different. The doctor has a higher opportunity cost (\$250) because they earn more per hour (\$125) than the professor (\$20). If they both chose to work instead of playing tennis for two hours, the doctor would potentially lose more income (\$250) than the professor (\$40). However, personal preferences and non-financial benefits should also be considered when evaluating opportunity costs.

Step by step solution

01

Calculate hourly earnings

To calculate hourly earnings, we need to divide each person's annual salary by the number of working hours in a year. Assuming they both work 40 hours per week and 50 weeks per year (taking into account vacations and holidays), the total number of hours worked by each is 2000 hours per year. Doctor's hourly earnings: \(250,000 / 2000 = \$ 125\) per hour Professor's hourly earnings: \(40,000 / 2000 = \$ 20\) per hour
02

Determine time spent playing tennis

We need to know how long they play tennis on Saturday mornings to determine the opportunity cost of their choices. For example, let's assume they play tennis for 2 hours each Saturday.
03

Calculate Opportunity Costs

Opportunity cost is the value of the next best alternative forgone. In this case, the opportunity cost of playing tennis for each person is the income they could potentially gain if they chose to work instead of playing tennis. Doctor's opportunity cost: \(125 × 2 = \$ 250\) Professor's opportunity cost: \(20 × 2 = \$ 40\)
04

Comparison and Conclusion

Comparing the opportunity costs of the doctor and the professor, we find that the doctor has a higher opportunity cost (\$250) than the professor (\$40). This is because the doctor earns more per hour, and therefore has more to lose financially by choosing to play tennis instead of working. However, it is important to consider that income is not the only factor in determining the value of a leisure activity. Personal preferences and non-financial benefits, such as relaxation and spending time with family, should also be taken into consideration when evaluating opportunity cost.

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