Answered: Store Opportunity Cost of Time Price of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Juanita is deciding whether to buy a suit that she wants, as well as where to buy it. Three stores carry the same suit, but it is more convenient for Juanita to get to some stores than others. For example, she can go to her local store, located 15 minutes away from where she works, and pay a marked-up price of $129 for the suit:

Store	Travel Time Each Way	Price of a Suit
(Minutes)	(Dollars per suit)
Local Department Store	15	129
Across Town	30	86
Neighboring City	60	63

Juanita makes $50 an hour at work. She has to take time off work to purchase her suit, so each hour away from work costs her $50 in lost income. Assume that returning to work takes Juanita the same amount of time as getting to a store and that it takes her 30 minutes to shop. As you answer the following questions, ignore the cost of gasoline and depreciation of her car when traveling.

Complete the following table by computing the opportunity cost of Juanita's time and the total cost of shopping at each location.

Store	Opportunity Cost of Time	Price of a Suit
(Dollars)	(Dollars per suit)	(Dollars)
Local Department Store		129
Across Town		86
Neighboring City		63

Assume that Juanita takes opportunity costs and the price of the suit into consideration when she shops. Juanita will minimize the cost of the suit if she buys it from the .

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