Question

Walter is a chemistry teacher who earns $50,000 per year, while Jesse is unemployed. Both Walter and Jesse want to go back to school to earn a business degree to help them operate their new business. The tuition each one would have to pay is the same, and they have agreed each to pay half of the tuition regardless of which one attends. Assume they cannot attend part-time. Do they indeed face the same cost of enrolling in this program. Why or why not?

Answer 1

Answer:

No, their economic cost of enrolling in the business program is not the same for both,

Explanation:

The explicit costs of going back to college are the same for Walter and Jesse, e.g. they might be $20,000 per year, or even $30,000 doesn't matter for this analysis. But Walter is currently working as a teacher and that means taht if he decides to go to college, his implicit costs will include the forgone salary as a teacher which is $50,000 per year. Implicit costs are opportunity costs, i.e. additional costs or benefits lost from choosing one activity or investment instead of another alternative.

Since Jesse is not working, whether she goes back to college or not will not affect her income, it will still be $0, but if Walter goes back to college he will lose his salary.