What is the opportunity cost in this scenario?
Harry has been very busy at work for the past two weeks. He has been working weekends too. Finally, he is going to get a weekend off. {{Originally, he planned to paint his apartment that weekend.}} He also considered going fishing for the weekend. {{But then his parents called and asked him to come for dinner}} because it has been a while since they have seen each other.
{{Later on, his friend Theo informed him about a surprise birthday party for another friend.}} Theo plans to reserve a room at a restaurant for the celebration, with the cost to reserve the room split between Theo, Harry, and three other friends.
Now Harry is confused about what he should do over the weekend. He decides that, for him, the most important commitments are going over to his parent’s house and attending his friend’s birthday party. In the end, Harry decides to see his parents.
The Correct Answer and Explanation is:
In this scenario, the opportunity cost for Harry is attending his friend’s surprise birthday party. Opportunity cost refers to the value of the next best alternative that one gives up when making a choice. In Harry’s case, he had to make a decision between several options for his weekend off, including painting his apartment, going fishing, visiting his parents, and attending a birthday party. Ultimately, he decides to visit his parents, which means the opportunity cost is the next most valued option that he gave up—attending the birthday party.
Harry’s initial plan was to paint his apartment, but as other opportunities arose, this became less of a priority. His consideration of going fishing was also pushed aside when more social engagements were presented. Between seeing his parents and attending the surprise birthday party, Harry valued visiting his parents more, indicating that spending time with them holds the most personal significance for him. However, the decision comes at the cost of missing his friend’s birthday party, which was important to him as well, given that he considered it as one of his top two priorities for the weekend.
It’s important to understand that opportunity cost is not just about monetary loss but also about missed experiences and potential enjoyment. Although Harry will not have to share the cost of the restaurant reservation for the birthday party if he doesn’t attend, the real cost is the missed chance to celebrate with friends and enjoy social interaction. In this case, the opportunity cost is the lost experience of the birthday celebration, which could have provided Harry with social benefits and the chance to maintain friendships.
Thus, Harry’s opportunity cost is not being able to attend his friend’s surprise birthday party.