Assume that the rental cost of skydiving gear is $95 and hiring skydiving instru

Question

Assume that the rental cost of skydiving gear is $95 and hiring skydiving instructor costs $130. If Jennifer goes skydiving, she would also wear the helmet she bought last summer for $45. If Jennifer does not go skydiving, she could either work at her job, which would earn her $215, or spend a day at the beach, which she values at $55.

Suppose that she was planning to spend Friday working at her job, but Jennifer's boyfriend asks her to go skydiving.

The opportunity cost of going skydiving is ____.

Explanation / Answer

The opportunity cost refers to the highest alternate value foregone in order to select another alternative.

If Jennifer goes for skydiving, she will have to forego her salary at work ($215) or the value from spending a day in beach ($55). The value of the salary foregone is higher than the value derived from spending a day in beach. Therefore, the opportunity cost of going skydiving is the highest alternate value foregone = $215.

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