2. Determining opportunity cost

Juanita is deciding whether to buy a skirt that she wants, as well as where to buy it. Three stores carry the same skirt, but it is more convenient for Juanita to get to some stores than others. For example, she can go to her local store, located 15 minutes away from where she works, and pay a marked-up price of $102 for the skirt:

Store

Travel Time Each Way Price of a Skirt

(Minutes) (Dollars per skirt)

Local Department Store 15 102

Across Town 30 85

Neighboring City 60 76

Juanita makes $42 an hour at work. She has to take time off work to purchase her skirt, so each hour away from work costs her $42 in lost income. Assume that returning to work takes Juanita the same amount of time as getting to a store and that it takes her 30 minutes to shop. As you answer the following questions, ignore the cost of gasoline and depreciation of her car when traveling.

Complete the following table by computing the opportunity cost of Juanita's time and the total cost of shopping at each location.

Store

Opportunity Cost of Time Price of a Skirt Total Cost

(Dollars) (Dollars per skirt) (Dollars)

Local Department Store 102

Across Town 85

Neighboring City 76

Assume that Juanita takes opportunity costs and the price of the skirt into consideration when she shops. Juanita will minimize the cost of the skirt if she buys it from the store in the neighboring city.