Mina decides to spend three hours working overtime rather than going to the park with her friends. She earns $20 per hour for overtime work. Her opportunity cost of working is

Question

a. the $60 she earns working.
b. the enjoyment she would have received had she gone to the park.
c. nothing, since she would have received less than $60 worth of enjoyment from going to the park.
d. the $60 minus the enjoyment she would have received from going to the park.

Answer 1

The opportunity cost of a decision is defined as the value of the next best alternative that is forgone. In this case, Mina has the alternative of going to the park with her friends, which she would have enjoyed, but instead, she chooses to work overtime.

Mina earns $20 per hour for three hours of overtime, which totals $60 (i.e., 3 hours × $20/hour = $60). The opportunity cost of her decision to work is not just the monetary earnings from her overtime work but includes the value of the enjoyment she is giving up by not going to the park.

Therefore, the best answer to her opportunity cost of working is:

b. the enjoyment she would have received had she gone to the park.

This option highlights the value of the next best alternative that she forgoes by choosing to work instead. While the $60 is relevant in terms of earnings, the true essence of opportunity cost is the value of what she didn't choose, which is her enjoyment at the park.