A second-year MBA student, takes three hours off one evening and uses his car to go to a movie with a friend. A ticket to the movie costs Josh $5, gasoline for the trip costs $1, and Josh passed up tutoring a student that night at $10 an hour. He could also have used the three hours to work as a grader for a professor at $15 an hour. What is Joshâs economic cost of going to the movie?

$-39

Explanation:

Economic cost is implicit cost less accounting cost

Implicit cost or opportunity cost : implicit cost is the cost of the next best option forgone when one alternative is chosen over other alternatives. It is used in calculating economic profit

There are two opportunities the student forgoes when he decides to go to the movies. They are, the amount he would have earned if he tutored the student which has a value of $10 / hour and the amount he would have earned working as a grader which is $15 / hour.

The next best option is $15 / hour because it has a higher value

total economic cost = 15 x 3 = 45

the cost of the ticket and the cost of gasoline are explicit costs

Explicit cost includes the amount expended in going to the cinema

6 - 45 = -39

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