Question

If Jane attends graduate school, it will take her two years, during which time she will earn no income. She will pay a total of $100,000 for tuition, $20,000 for room and board, and $2,000 for books. If she spends the two years working rather than attending college, she will pay a total of $18,000 for room and board, pay no intuition, and buy no books. Based on this information, Jane's economic cost of attending graduate school would be $175,000 if, over the two years, she could earn a total of ________.a. $53,000 instead of attending graduate school.
b. $55,000 instead of attending graduate school.
c. $71,000 instead of attending graduate school.
d. $73,000 instead of attending graduate school.

Answer 1

Answer:

C. $71,000 instead of attending graduate school

Explanation:

Given that

Economic cost = 175000

Recall that

Economic Cost = Accounting (Explicit) Cost + Implicit Cost

Accounting Cost = Tuition + room + books

= 100000 + 20000 + 2000

= 122000

Implicit Cost = Opportunity cost of attending the school. So,

Assuming money earned from job = a

Then,

Spending if she gets the job = 18000 on room.

Therefore,

Implicit cost = a - 18000

We have

Economic Cost = 122,000 + (a - 18000)

175000 - 122000 + 18000 = a

53000 + 18000 = a

71000 = a

Remember

a = money earned from job

Thus

Money she could earn in 2 years instead of attending graduate school = $71,000