<p>To calculate the gross opportunity cost of Sally pursuing an MBA, we have to consider both the explicit costs (fees, textbooks) and the foregone income (salary as a stockbroker).</p>
<p>The opportunity cost can be broken down into these components:</p>
<p>Explicit Costs:</p>
<ul>
<li>MBA Fees: \$20,000/year × 3 years = \$60,000</li>
<li>Textbook Costs: \$5,000/year × 3 years = \$15,000</li>
</ul>
<p>The total explicit cost is \$60,000 (MBA fees) + \$15,000 (textbook costs) = \$75,000</p>
<p>Foregone Income:</p>
<ul>
<li>Salary as a Stockbroker: \$80,000/year x 3 years = \$240,000</li>
</ul>
<p>The total opportunity cost is then the sum of explicit costs and foregone income.</p>
<p>Total opportunity cost = \$75,000 (explicit costs) + \$240,000 (foregone income) = <strong>\$315,000</strong></p>
<p>This is the gross opportunity cost as it doesn't account for the \$10,000/year Sally will make doing her tutoring.</p>
<p>Therefore, the net opportunity cost would be \$315,000 - (\$10,000/year x 3 years) =  <strong>\$285,000</strong></p>

CC BY-SA 4.0
2023-10-04T06:31:42.070Z
What is the difference between net opportunity cost, gross opportunity cost, and total opportunity cost? and why I shouldn't take $10,000/year Sally will make doing her tutoring. for the net opportunity cost (because I think your calculation already did not mention that in the total opportunity cost) - thank you for your answer !
DTJ
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2023-10-04T08:05:38.647Z
@DTJ Gross opportunity cost simply neglects to account for any income Sally gets during her MBA.  But because income generated BECAUSE of her choice to do an MBA will effectively reduce the "lost opportunity", it should be considered in the analysis, hence it gives a net opp cost. If Sally's tutoring gave her an income of \$500,000 a year then it would be an absolute no brainer to do the MBA (assuming she couldn't tutor without doing the MBA.  Obviously this is a extreme scenario to prove the importance of net opp cost accounting for new income in your chosen decision.
Jamie Smith
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2023-10-17T21:02:04.760Z
@csilvia No, explicit costs are included. See [this](https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=https://www.csun.edu/sites/default/files/micro1.pdf&ved=2ahUKEwiA7I7o_P2BAxVbhP0HHXgFCuoQFnoECA8QBg&usg=AOvVaw2JgItRBypIa7wd4iCFgd1y)
Jamie Smith
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2023-10-17T21:08:23.960Z
@csilvia As you were, I've realised my mistakes. I'll make an edit but do please add your own answer :)
Jamie Smith
CC BY-SA 4.0
2023-10-17T21:20:43.687Z
@csilvia On 2nd thoughts, potentially not.  "The opportunity cost includes both explicit and implicit costs." Explicit cost is cost to do MBA. Implicit cost is forgone income. You have to add both of them to get Opportunity cost
Jamie Smith
CC BY-SA 4.0
2023-10-18T23:06:37.847Z
ok I think I was wrong I retracted my previous comment
csilvia
CC BY-SA 4.0
2023-10-03T13:33:53.657Z
2023-10-03T13:33:53.657Z
Jamie Smith
<p>I have a question about opportunity cost (from Microeconomics- Case Studies and Applications -3rd Edition by Jeff Borland)</p>
<pre><code>Question 4: Sally Stockbroker has to decide whether to return to university to study for a Master of Business Administration (MBA). The MBA will take three years to complete. Sally knows that the information relevant to calculating opportunity cost is that:

(a) MBA fees will cost $20 000 per year; 

(b) her salary as a stockbroker in every future year of her working life would be $80 000 per year if Sally does not do an MBA

(c) during her time studying, Sally can work as a tutor at the university and earn $ 10,000 per year

(d) other costs of studying such as textbooks that Sally would not otherwise incur amount to $5000 per year.

At present, Sally has not incurred any of these costs. What is the opportunity cost for Sally to do an MBA?

</code></pre>
<p>My lecturer in microeconomics said that the opportunity cost will be equal to the summation of what Sally must pay (including the tuition for 3 years + the expenses of studying for 3 years) + the opportunity Sally may lose while she studies MBA</p>
<p>which equal to:</p>
<p><span class="math-container">$ The\: Opportunity \: Cost$</span>  <span class="math-container">$=$</span> <span class="math-container">$ {20.000\: \times 3}$</span>   <span class="math-container">${+}$</span> <span class="math-container">$ {5.000\:\times 3}$</span>  <span class="math-container">${+}$</span>   <span class="math-container">$ {80.000\:\times 3}$</span>  <span class="math-container">$=$</span> <span class="math-container">$ {315.000 \: $}$</span></p>
<p>But my own answer is using the formula of</p>
<p><span class="math-container">$ The\: Opportunity \: Cost$</span> = <span class="math-container">${Return \: of \:forgone \: option}$</span>  <span class="math-container">$ \:-$</span> <span class="math-container">${Return \: of \:choosing \: option}$</span></p>
<p>which equal to:</p>
<p><span class="math-container">${ 80.000 \times 3 \: - ( 10.000 \: - \: 20.000  - \: 5.000) \: \times 3 \: = (-45.000)$  }$</span></p>
<p>So which answer is the correct answer, and why it is correct</p>
<p>(I'm a newbie to micro-economics, so please give some empathy for my lack of knowledge)</p>
<p>Thanks in advance !</p>

<opportunity-cost>
A question of measuring the opportunity cost
DTJ
# A question of measuring the opportunity cost

(Asked by: username_0 on 2023-10-03)

I have a question about opportunity cost (from Microeconomics- Case Studies and Applications -3rd Edition by Jeff Borland)
Question 4: Sally Stockbroker has to decide whether to return to university to study for a Master of Business Administration (MBA). The MBA will take three years to complete. Sally knows that the information relevant to calculating opportunity cost is that:

(a) MBA fees will cost $20 000 per year; 

(b) her salary as a stockbroker in every future year of her working life would be $80 000 per year if Sally does not do an MBA

(c) during her time studying, Sally can work as a tutor at the university and earn $ 10,000 per year

(d) other costs of studying such as textbooks that Sally would not otherwise incur amount to $5000 per year.

At present, Sally has not incurred any of these costs. What is the opportunity cost for Sally to do an MBA?


My lecturer in microeconomics said that the opportunity cost will be equal to the summation of what Sally must pay (including the tuition for 3 years + the expenses of studying for 3 years) + the opportunity Sally may lose while she studies MBA
which equal to:
$ The\: Opportunity \: Cost$ $=$ $ {20.000\: \times 3}$ ${+}$ $ {5.000\:\times 3}$ ${+}$ $ {80.000\:\times 3}$ $=$ $ {315.000 \: $}$
But my own answer is using the formula of
$ The\: Opportunity \: Cost$ = ${Return \: of \:forgone \: option}$ $ \:-$ ${Return \: of \:choosing \: option}$
which equal to:
${ 80.000 \times 3 \: - ( 10.000 \: - \: 20.000  - \: 5.000) \: \times 3 \: = (-45.000)$  }$
So which answer is the correct answer, and why it is correct
(I'm a newbie to micro-economics, so please give some empathy for my lack of knowledge)
Thanks in advance !

**Tags:** opportunity-cost

---

## 1 answers

### Answer by username_1 on 2023-10-03. Score: -1

To calculate the gross opportunity cost of Sally pursuing an MBA, we have to consider both the explicit costs (fees, textbooks) and the foregone income (salary as a stockbroker).

The opportunity cost can be broken down into these components:

Explicit Costs:

* MBA Fees: \$20,000/year × 3 years = \$60,000
* Textbook Costs: \$5,000/year × 3 years = \$15,000

The total explicit cost is \$60,000 (MBA fees) + \$15,000 (textbook costs) = \$75,000

Foregone Income:

* Salary as a Stockbroker: \$80,000/year x 3 years = \$240,000

The total opportunity cost is then the sum of explicit costs and foregone income.

Total opportunity cost = \$75,000 (explicit costs) + \$240,000 (foregone income) = **\$315,000**

This is the gross opportunity cost as it doesn't account for the \$10,000/year Sally will make doing her tutoring.

Therefore, the net opportunity cost would be \$315,000 - (\$10,000/year x 3 years) = **\$285,000**

> **Comments:**
> **username_0**: What is the difference between net opportunity cost, gross opportunity cost, and total opportunity cost? and why I shouldn't take $10,000/year Sally will make doing her tutoring. for the net opportunity cost (because I think your calculation already did not mention that in the total opportunity cost) - thank you for your answer !  
> **username_1**: @DTJ Gross opportunity cost simply neglects to account for any income Sally gets during her MBA.  But because income generated BECAUSE of her choice to do an MBA will effectively reduce the "lost opportunity", it should be considered in the analysis, hence it gives a net opp cost. If Sally's tutoring gave her an income of \$500,000 a year then it would be an absolute no brainer to do the MBA (assuming she couldn't tutor without doing the MBA.  Obviously this is a extreme scenario to prove the importance of net opp cost accounting for new income in your chosen decision.  
> **username_1**: @csilvia No, explicit costs are included. See [this](https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=https://www.csun.edu/sites/default/files/micro1.pdf&ved=2ahUKEwiA7I7o_P2BAxVbhP0HHXgFCuoQFnoECA8QBg&usg=AOvVaw2JgItRBypIa7wd4iCFgd1y)  
> **username_1**: @csilvia As you were, I've realised my mistakes. I'll make an edit but do please add your own answer :)  
> **username_1**: @csilvia On 2nd thoughts, potentially not.  "The opportunity cost includes both explicit and implicit costs." Explicit cost is cost to do MBA. Implicit cost is forgone income. You have to add both of them to get Opportunity cost  
> **username_2**: ok I think I was wrong I retracted my previous comment  

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