I'm new to microeconomics so sorry if this is simplistic, but if an action should only be taken when benefits > costs and opportunity costs are included in cost calculations, how would one deal with situations that arise when implicit costs make either choice not worth doing? For example, if you have the option to see a movie or go bowling at the same time, and the movie ticket is 10 dollars with 12 dollar benefit and the bowling entry is 15 dollars with 17 dollar benefit, wouldn't that make the costs (including opportunity cost) of the movie 27 and bowling 27, both higher than their benefits, so a person should choose to do neither? This seems illogical so I'm sure I am missing something.

  • 1
    $\begingroup$ If a person has only the two options and not any better ones rational person will minimize the pain (i.e. negative utility/disutility). $\endgroup$
    – 1muflon1
    Jul 13 '20 at 18:23

As correctly pointed out by @Herr K., the opportunity cost of forgoing a movie (bowling) and going bowling (to a movie) is $2.

Hence, the net payoff from going to a movie = benefit - cost = 12 - (10+2) =0. Similarly, the net payoff from going bowling is 17-(15+2) = 0 Hence the consumer should be indifferent between bowling and going to a movie.

  • 3
    $\begingroup$ Why is it "correct" that the opportunity cost either activity is \$27? The forgone benefit of either activity, i.e. the implicit cost, is only \$2. $\endgroup$
    – Herr K.
    Jul 13 '20 at 18:43
  • $\begingroup$ My oh my! I dont know what I was thinking. You are absolutely right. Please write the correct answer down. :) $\endgroup$
    – user28372
    Jul 13 '20 at 19:23

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.