George has two choices. He can go to college for four years to earn a degree, which will cost him $20,000 a year. Or he can go to work straight out of high school, where he will earn $25,000 a year. Assuming that the tuition and salary rates do not fluctuate during those four years, what is the opportunity cost of going to college?
Explanation
Answer: C - George’s opportunity cost to pursue four years of college would be $100,000. When a person chooses Choice A (college) over Choice B (working), the opportunity cost is what they give up as a result of that choice. George is giving up four years of work, for which he would earn $25,000 a year ($25,000 x 4 = $100,000) so that he can increase his chances of earning more than $25,000 a year after he earns a college degree. In order for this to be a cost-effective decision, George’s post-collegiate earnings throughout his life need to offset the total cost of attendance ($80,000) and the opportunity cost ($100,000).
