Give an example of how the Principle of Opportunity Cost applies to your life. Think of a recent decision you made. It could be a decision as simple as whether to eat out or cook your own dinner, or it could be a decision to quit your job and go back to school. What alternatives did you consider? How did you arrive at your final decision? Did you implicitly weigh marginal cost and marginal benefit? How does the concept of opportunity cost apply to production possibilities curve (PPC) analysis? How can we use PPC analysis to examine what we do?
If I give you a
Give an example of how the Principle of Opportunity Cost applies to your life. Think of a recent decision you made. It could be a decision as simple as whether to eat out or cook your own dinner, or it could be a decision to quit your job and go back to school. What alternatives did you consider? How did you arrive at your final decision? Did you implicitly weigh marginal cost and marginal benefit? How does the concept of opportunity cost apply to production possibilities curve (PPC) analysis? How can we use PPC analysis to examine what we do?
If I give you a
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1.(18 points) A public school district is investigating whether to purchase a new school bus to take over the rural-most route in the district. They have two options:
A modern, eco-friendly bus complete with seat belts and air conditioning, will have a first cost of $104,000, cost savings (in terms of fuel efficiency and maintenance costs) of $20,000/year the first year, and decreasing by $800 per year thereafter (so $19,200 the second year, $18,400 the third year, etcâ¦). Itâs estimated that the salvage value will be $8,000 at the end of its 12 year life.
A more basic bus will have a first cost $72,000 and cost savings of $12,800 per year. It is estimated that the salvage value will be $5000 at the end of its 12-year life.
Assume that the school district also has the option to stay with their current fleet (so the do nothing option is also available), and the MARR is 5%.
a. Use Benefits to Costs analysis to determine which of the options, if any, would be most economical for the school district.
b.Suppose the modern (more expensive) bus can be purchased for $99,000. How does this affect the Benefits to Costs analysis? Does this change your decision from part âaâ, or further reinforce it?
c. At what first cost of the modern (more expensive) bus are the two alternatives in this example equally desirable?
| Data for #4 part (c) | Modern | Basic |
| Cost | X | $70,000 |
| Uniform annual benefit | $20,000 in year 1, decreasing by $800/year thereafter | $14,000 in year 1, decreasing by $500/year thereafter |
| Salvage value | $8000 | $5000 |
d.In this problem only the economic consequences were evaluated. Do you think this type of decision is only economic, or are there other factors that could/would/should be considered? Briefly discussâ¦
