Question

Dawnell is a skilled dancer. She is currently teaching modern dance full time for three high schools and makes $44,000 a year. She is now giving up her work and joining a touring dance company for the next two years. She will make $24,000 a year dancing, but gain much more in experience and connections. Dawnell’s decision will result in

Answer 1

Answer: d. a two year opportunity cost of $40,000 after leaving her teaching position.

Explanation:

The opportunity cost of a decision refers to the returns from the next best alternative to that decision that you would miss out on for taking the decision you took.

The next best alternative here is to teach in a school for $44,000 a year. She is giving this up for 2 years so she is giving up pay of $88,000.

However, she will be making $24,000 a year from the dance company so her net opportunity cost is:

= Amount from high schools in 2 years - Amount from dance company in 2 years

= 88,000 - (24,000 + 24,000)

= $40,000