Jasper is tense and nervous. He has two choices: psychological therapy or acupun

Question

Jasper is tense and nervous. He has two choices: psychological therapy or acupuncture treatment.

Each visit with the psychologist costs $120. Jasper’ travel time is 15 minutes each way and each visit lasts 1 hour. If Jasper attends 2 of these sessions each week for 13 weeks, he will gain 300 healthy days.

Acupuncture therapy costs $600 for a 30 minute treatment, plus $70 per month. Travel time is 20 minutes each way. If Jasper gets acupuncture every month for a year, he will gain 200 healthy days.

Calculate the cost per healthy day under the psychological therapy or acupuncture treatment, and indicate which choice Jasper should make. Assume that Jasper’s wage rate is $30 per hour.

Explanation / Answer

Total cost (TC) = Explicit cost + Implicit cost

= Psychologist fee or accupuncture therapy cost + Wage foregone due to travel and visit

For Psychological therapy:

TC ($) = (2 x 13 x 120) + [{(1/4) x 2 + 1} x 2 x 13 x 30]

= 3,120 + [(0.5 + 1) x 26 x 30] = 3,120 + (1.5 x 26 x 30) = 3,120 + 1,170

= 4,290

Cost per healthy day = $4,290 / 300 = $14.3

For Accupuncture treatment:

TC ($) = [(600 + 70) x 12] + [{(1/2) + (1/3) x 2} x 12 x 30] = (670 x 12) + [{(1/2) + (2/3)} x 360]

= 8,040 + [(7/6) x 360] = 8,040 + 420 = 8,460

Cost per healthy day = $8,460 / 200 = $42.3

Since cost per healthy day is lower for psychologist treatment, Jasper should go for this option.

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