Suppose you currently earn $19,000 a year. You are considering a job that will increase your lifetime earnings by $190,000 but that requires an MBA. The job will mean also attending business school for two years at an annual cost of $25,000. You already have a bachelorâs degree, for which you spent $80,000 in tuition and books.
Which of the above information is relevant to your decision on whether to take the job?
The relevant cost is the $50,000 tuition you pay for business school. The relevant benefit is the increase in lifetime earnings of $190,000. The relevant costs are the $80,000 spent for the bachelorâs degree, the $50,000 tuition for business school, and lost wages from full-time employment. The relevant benefit is the increase in lifetime savings of $190,000. The relevant costs are the opportunity cost of taking the job (forgone earnings from your current job) and other things you could have done with the money you need to pay for business school. The tuition for the bachelorâs degree is a sunk cost and is not relevant. The relevant benefit is the increased lifetime earnings of $190,000. All the information given in the problem is relevant.
Suppose you currently earn $19,000 a year. You are considering a job that will increase your lifetime earnings by $190,000 but that requires an MBA. The job will mean also attending business school for two years at an annual cost of $25,000. You already have a bachelorâs degree, for which you spent $80,000 in tuition and books.
Which of the above information is relevant to your decision on whether to take the job?
| The relevant cost is the $50,000 tuition you pay for business school. The relevant benefit is the increase in lifetime earnings of $190,000. | |
| The relevant costs are the $80,000 spent for the bachelorâs degree, the $50,000 tuition for business school, and lost wages from full-time employment. The relevant benefit is the increase in lifetime savings of $190,000. | |
| The relevant costs are the opportunity cost of taking the job (forgone earnings from your current job) and other things you could have done with the money you need to pay for business school. The tuition for the bachelorâs degree is a sunk cost and is not relevant. The relevant benefit is the increased lifetime earnings of $190,000. | |
| All the information given in the problem is relevant. |
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Q1 after Alistair earned his BA, he had to decide whether to accept the offer of a job that will pay him $45,000 per year or spend an additional two years earning an MBA. If he decides to pursue the graduate degree, his annual expenses for tuition, books, board, and lodging will be $32,000. Alistair has been offered a scholarship for $10,000 per year, but to pay the remaining $22,000 per year, he would have to cash in savings bonds that his grandparents have given him that have been earning $500 in interest per year. The annual opportunity cost of earning his MBA is:
1-$67,500.
2- $77,000.
3-$99,000.
4-$77,500.
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