Opportunity Cost question (see below)

[philmophlegm]

Poll Opportunity Cost

Comments

[chris_maslen]

On the presumed basis that the lost value is the amount you'd be willing to pay for the Dylan tickets I chose £50.

[tovaglia]

That's what I thought, too, and value=amount you would pay ie £50 not the face value of the tickets

[philmophlegm]

You're halfway there...

[louisedennis]

I've put £0 on the grounds that you've not actually purchased a ticket for the Dylan concert yet so you are not giving up anything of financial value that you actually have at this point in time. That is I'm working on a purely monetary assessment of `cost'.

[bunn]

I'm also going with this line of reasoning.

[the_marquis]

I was going to vote this too, but then reasoned that if the 'opportunity cost' was the cost of giving up going to see Dylan then the Dylan ticket price was that cost even though I'd got the Clapton ticket for free and thus I was surely actually saving money beyond what it cost to get to the gig.*

However, I've never been anywhere near an economics course and get headaches near that kind of maths.

*I'm presuming that there is an inbuilt but unstated assumption that I am a muzo who will always got to a gig if there is one rather than stay at home reading LJ

[louisedennis]

I can see several ways to reason, but if you start factoring stuff you don't have yet but might at some point have then you also, presumably have to factor in the outlay

[adaese]

The value to you of a ticket for the Dylan concert is £10 - that's the difference between the £40 they charge, and the £50 you'd be willing to pay. Therefore not going to the Dylan concert costs £10.

[king_pellinor]

I agree, you've missed out on £10 of potential benefit by not going to the concert.

Although I have a certain amount of sympathy for the idea that the opportunity cost should be regarded as nil, as only the £40 is a known value - the £50 is only an estimate and therefore so is the £10. But you have to bring some hope value in somewhere :-)

[skordh]

That's what I figured, but it was a bit of a guess.

[philmophlegm]

You're a very clever and wonderful person. Not only did you get the right answer, you did this after seeing lots of people get the wrong answer, but you then explained perfectly why the answer is indeed £10.

Have a gold star!

[wellinghall]

It's the value of what you give up. So by going to see Clapton, the opportunity cost is the pleasure of going to see Dylan. But you didn't have an option for that, so I put £40; which seems to be the maximum value you would place on that pleasure.

I am ignoring frictional costs of both the Clapton and Dylan concerts.

[ladyofastolat]

I would reason that it would entirely depend on how much you liked Eric Clapton, which isn't stated in the original question. Since you say there's a single correct answer, I'm obviously completely wrong here, but to me "the value of what you must give up in its place" can't be calculated without reference to the relative value you put on what you're doing instead. Maybe you adore Eric Clapton and would willingly pay £1000 to see him, or maybe you don't really like him that much at all, and would bitterly regret missing Dylan. Surely that must make a difference. But what do I know? :-)

[philmophlegm]

I'm afraid you are "completely wrong", but your thinking is broadly along the right lines. It's just that you're trying to answer the wrong question. See the explanation I've just put up.