Answer: $15,000
Explanation:
Given that,
Elite U:
Costs $50,000 per year
Larry values attending Elite U = $60,000 per year
State College:
Costs = $30,000 per year
Offered Larry an annual scholarship = $10,000
Larry values attending State College = $40,000 per year
No Name U:
Costs = $20,000 per year
Offered Larry a full annual scholarship = $20,000
Larry values attending No Name = $15,000 per year
Larry gets economic surplus from:
Elite U = $60,000 - $50,000
= $10,000
State college = $40,000 + $10,000 - $30,000
= $20,000
No Name U = $15,000 + $20,000 - $20,000
= $15,000
State college > No Name > Elite U
Therefore, the opportunity cost of attending State college is the value of the next best alternative that is No Name U.
Hence, the opportunity cost is $15,000.
