Andrew quits his job as an accountant where he earns $60,000 per year to go back to school for two years to get an MBA degree. He attends a school that charges $25,000 per year for tuition and related expenses. How much is the total cost (explicit cost plus opportunity cost) of that degree?
Andrew is giving up $120,000.00 by quitting his job for 2 years and the cost for the degree is 25,000 per year so its costing him $170,000.00 for the degree.
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To calculate the total cost of Andrew's MBA degree, we need to consider the explicit cost of tuition and related expenses, as well as the opportunity cost of quitting his job.
First, let's calculate the explicit cost:
The school charges $25,000 per year for tuition and related expenses.
So, the total explicit cost for the two-year MBA degree is:
$25,000 per year x 2 years = $50,000.
Next, let's calculate the opportunity cost:
Andrew is quitting his job as an accountant, where he earns $60,000 per year.
He is going back to school for two years.
So, the opportunity cost is:
$60,000 per year x 2 years = $120,000.
Now, let's calculate the total cost:
Total cost = explicit cost + opportunity cost
Total cost = $50,000 + $120,000
Total cost = $170,000.
Therefore, the total cost of Andrew's MBA degree, including both explicit cost and opportunity cost, is $170,000.
To calculate the total cost of Andrew's MBA degree, we need to consider both explicit costs (direct expenses incurred) and opportunity costs (the value of the next best alternative foregone).
1. Explicit Costs:
Andrew attends school for two years, and the annual tuition and related expenses amount to $25,000. So, the explicit cost for the degree is $25,000 per year multiplied by 2 years, which is $50,000.
2. Opportunity Costs:
When Andrew decides to go back to school, he quits his job as an accountant where he earns $60,000 per year. Since he spends two years in school, the opportunity cost is the income he is sacrificing during that period.
The opportunity cost can be calculated by multiplying the annual salary ($60,000) by the number of years in school (2 years). Thus, the opportunity cost is $60,000 per year multiplied by 2 years, which equals $120,000.
3. Total Cost:
To determine the total cost of the degree, we sum up the explicit cost and opportunity cost.
Explicit Cost: $50,000
Opportunity Cost: $120,000
Total Cost: $50,000 + $120,000 = $170,000
Therefore, the total cost of Andrew's MBA degree, including explicit cost and opportunity cost, is $170,000.