Question

You have rented your first apartment, signing a lease that commits you to pay $500 each month for 12 months. You have an opportunity to take a trip to Europe during the entire month of June and you will spend $2,000 traveling. Your apartment will be vacant, but because of your lease, you must pay the rent. The cost of taking the trip to Europe is:
a. $2,000, because the $500 for your June rent is a sunk cost
b. $2,500, because this is your total spending during the month of June
c. $1,500, because the June rent is an opportunity cost of traveling that must be deducted from the explicit cost of the trip.
d. $2,500, because the June rent is an opportunity cost of traveling and must be added to the explicit cost of the trip

Answer 1

Answer:

d. $2,500, because the June rent is an opportunity cost of traveling and must be added to the explicit cost of the trip

Explanation:

Total cost for the month of June can be expressed as;

Total cost for June=Cost of rent+Cost of the trip

where;

Cost of rent=$500 per month

Cost of the trip=$2,000

replacing in the expression above;

Total cost=(2,000+500)=$2,500

The total cost for the month of June is $2,500 since the cost of rent is an opportunity cost of travelling and must be added to the explicit cost of the trip