<p>I had an insight. We just need to convert both effects into utils. Wage will be positive utils and time wasted will be negative utils. Then we will need to sum up positive and negative utils for each choice. Then the best of remaining choices will be the one with the highest amount of utils. And there will only one opportunity cost, namely utils foregone.</p>

CC BY-SA 4.0
2020-04-13T00:38:30.400Z
Yes, you're on the right track by assigning utilities to each bundle.The "problem" is that the opportunity cost is entirely dependent on preferences in the second case, unlike the first case where the best alternative is clear due to the monotonicity of a utility function.
actuarialboi9
CC BY-SA 4.0
2020-04-13T02:34:25.760Z
" you could just convert the hours of traveling time into a dollar value" I said that I can't monetize my free time
KarmaPeasant
CC BY-SA 4.0
2020-04-13T19:55:54.977Z
This diverges from the original question but there's a model which studies the relationships between wages and working hours (or leisure time). http://www.economicsdiscussion.net/income/individuals-choice-between-income-and-leisure-explained-with-diagram/1196
actuarialboi9
CC BY-SA 4.0
2020-04-14T02:01:39.400Z
@actuarialboi9 I'm afriad this model isn't applicable, as I said earlier, I can't monetize my free time
KarmaPeasant
CC BY-SA 4.0
2020-05-13T17:21:36.493Z
@KennyLJ I just understood that in your example assigning non-zero monetary value to time will be the same thing as assignment of utils to the time. So your approach is basically the same as mine in the answer.
KarmaPeasant
CC BY-SA 4.0
2020-04-12T16:00:09.827Z
2020-04-12T16:07:40.947Z
2020-04-12T16:07:40.947Z
KarmaPeasant
<p>Note that as a rational agent you will have preferences on the set of (wage, free time) bundles. Your own answer suggests that these two "goods" are perfect substitutes, but this is not the general case. If your preferences are given by a utility function you can calculate the utilities for the three bundles in your choice set and then proceed in the way you indicated, measuring opportunity costs by utils foregone.</p>

<p>Alternatively, you can for each of the three bundles find a respective indifferent point at the maximal-free-time line in the space of bundles (corresponding to zero traveling time) and compare the wage levels of these points to get a monetary measure of opportunity costs. This corresponds to converting the traveling time contained in each bundle to some wage loss which you would be prepared to face if traveling time could be eliminated from the respective bundle. (If your preferences happen to be quasi-linear in money, this amounts to calculating your willingness-to-pay (WTP) to avoid traveling time, but in the general case this WTP need not be independent of the wage level.)</p>

CC BY-SA 4.0
2020-04-15T13:15:51.643Z
2020-04-15T13:15:51.643Z
VARulle
<p>Let me start with an example where I DO understand how to find opportunity cost.
Suppose I have choice to either work for firm A (\$1000 wage) or for firm B(\$2000 wage) or for firm C(\$500 wage). If I choose frim B, then I will forgo my best out of remaining alternatives, namely wage that I would get working for firm A.</p>

<p>Now let's add another aspect:traveling time. Working for different firms will imply different time needed to spend on traveling back and forth between my home and work. Suppose I can't monetize saved time, but I prefer to have more free time nonetheless.</p>

<p>I have three choices, between firm A(\$2000 wage, 2 hours traveling time), firm B(\$1500 wage, 1 hour traveling time) and firm C(\$1200 wage, 0.5 hour traveling time). <strong>Suppose I chose to work for firm B, what will be the opportunity cost of such decision?</strong> Two things confuse me in this case. There seems no clear way to pick the best alternative and then declare its effects (i.e. wage and traveling time) to be opportunity cost. Firm A offers better wage than firm C, but firm C offers lower traveling time than firm A.On ther other hand, our choice has two effects (wage and traveling time), is it really correct to take them both and declare as ONE opportunity cost, rather than two separate opportunity costs?</p>

<opportunity-cost>
How to find opportunity cost if each choice has more than one important effect?
KarmaPeasant
# How to find opportunity cost if each choice has more than one important effect?

(Asked by: username_0 on 2020-04-12)

Let me start with an example where I DO understand how to find opportunity cost.
Suppose I have choice to either work for firm A (\$1000 wage) or for firm B(\$2000 wage) or for firm C(\$500 wage). If I choose frim B, then I will forgo my best out of remaining alternatives, namely wage that I would get working for firm A.

Now let's add another aspect:traveling time. Working for different firms will imply different time needed to spend on traveling back and forth between my home and work. Suppose I can't monetize saved time, but I prefer to have more free time nonetheless.

I have three choices, between firm A(\$2000 wage, 2 hours traveling time), firm B(\$1500 wage, 1 hour traveling time) and firm C(\$1200 wage, 0.5 hour traveling time). **Suppose I chose to work for firm B, what will be the opportunity cost of such decision?** Two things confuse me in this case. There seems no clear way to pick the best alternative and then declare its effects (i.e. wage and traveling time) to be opportunity cost. Firm A offers better wage than firm C, but firm C offers lower traveling time than firm A.On ther other hand, our choice has two effects (wage and traveling time), is it really correct to take them both and declare as ONE opportunity cost, rather than two separate opportunity costs?

**Tags:** opportunity-cost

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## 2 answers

### Answer by username_0 on 2020-04-12. Score: -1 | Accepted answer

I had an insight. We just need to convert both effects into utils. Wage will be positive utils and time wasted will be negative utils. Then we will need to sum up positive and negative utils for each choice. Then the best of remaining choices will be the one with the highest amount of utils. And there will only one opportunity cost, namely utils foregone.

> **Comments:**
> **username_1**: Yes, you're on the right track by assigning utilities to each bundle.The "problem" is that the opportunity cost is entirely dependent on preferences in the second case, unlike the first case where the best alternative is clear due to the monotonicity of a utility function.  
> **username_0**: " you could just convert the hours of traveling time into a dollar value" I said that I can't monetize my free time  
> **username_1**: This diverges from the original question but there's a model which studies the relationships between wages and working hours (or leisure time). http://www.economicsdiscussion.net/income/individuals-choice-between-income-and-leisure-explained-with-diagram/1196  
> **username_0**: @actuarialboi9 I'm afriad this model isn't applicable, as I said earlier, I can't monetize my free time  
> **username_0**: @KennyLJ I just understood that in your example assigning non-zero monetary value to time will be the same thing as assignment of utils to the time. So your approach is basically the same as mine in the answer.  

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### Answer by username_2 on 2020-04-15. Score: 0

Note that as a rational agent you will have preferences on the set of (wage, free time) bundles. Your own answer suggests that these two "goods" are perfect substitutes, but this is not the general case. If your preferences are given by a utility function you can calculate the utilities for the three bundles in your choice set and then proceed in the way you indicated, measuring opportunity costs by utils foregone.

Alternatively, you can for each of the three bundles find a respective indifferent point at the maximal-free-time line in the space of bundles (corresponding to zero traveling time) and compare the wage levels of these points to get a monetary measure of opportunity costs. This corresponds to converting the traveling time contained in each bundle to some wage loss which you would be prepared to face if traveling time could be eliminated from the respective bundle. (If your preferences happen to be quasi-linear in money, this amounts to calculating your willingness-to-pay (WTP) to avoid traveling time, but in the general case this WTP need not be independent of the wage level.)


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