Opportunity cost When determining the cost of something, the pertinent comparison isn’t with zero – but with what you’d do with the money if you didn’t.

Presentation on theme: "Opportunity cost When determining the cost of something, the pertinent comparison isn’t with zero – but with what you’d do with the money if you didn’t."— Presentation transcript:

opportunity cost When determining the cost of something, the pertinent comparison isn’t with zero – but with what you’d do with the money if you didn’t do it.

Cost of renting a house, vs buying? Rent: \$800/mo, say. Buying: \$160,000, say. Break even point: after 200mos (18yrs)? But, you’d own the house, and never need to pay rent again, ever! (?) But if you had \$160,000 you could invest it for \$4800/yr, or \$400/mo. So break-even point is really 400mos. Opportunity cost of buying a house includes the loss of potential investment.

how much does it cost to go to RU? \$8800/yr tuition, fees, books, suppliestuition \$10000/yr room and board, transport, expenses But the best answer also involves what you’d do if you weren’t in school. Get a job! How much does it pay? \$8/hr * 40hrs/wk * 50wk/yr = \$16,000/yr \$24,800/yr So, factoring in the opportunity cost of getting a job, the real yearly cost of RU is:

“investing in lifetimes” But: after graduating college, you can get a better job. Lifetime earnings w/ High School degree: \$1.2million ! Lifetime earnings w/ Bachelor’s degree: \$2.1million !! So the cost of college is high, but the lifetime opportunity cost is a gain.

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