Estimating the Opportunity Cost. Julia brings home $1,690 per month after taxes.

Question

Estimating the Opportunity Cost. Julia brings home $1,690 per month after taxes. Julia?s rent is $377 per month, her utilities are $111 per month, and her car payment is $282 per month. Julia is currently paying $211 per month to her orthodontist for her braces. Julia?s groceries cost $37 per week and she estimates her other expenses to be $172 per month. As a result, she has $389 left each month to put toward savings to reach her financial goals. Julia is considering trading in her car for a new one. Her new car payment will be $334 per month, and her insurance cost will increase by $58 per month. Julia determines that her other car-related expenses (gas, oil) will stay about the same. What is the opportunity cost if Julia purchases the new car? The opportunity cost if Julia purchases the new car is $. (Round to the nearest dollar.)

Explanation / Answer

Opportunity cost is the value of the next best alternative foregone. To buy the car Julia will spend $334 per month to pay for the car and $58 for the insurance of the car. Hence the total cost of car = $392.

The opportunity cost if Julia purchases the new car is $392.

I hope my solution solves your query.

Regards.

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