Amy lives with her parents rent-free, spends $210/week on other living expenses such as food and entertainment, and earns $425/week from her job. Amy is planning to take an unpaid leave from her job to travel in Cambodia. She has already purchased a visa for Cambodia for $55. She would pay $370/week for accommodations and $125/week for other living expenses in Cambodia and $975 for a round-trip flight. What is Amy’s opportunity cost of traveling in Cambodia for 4 weeks? Explain or show how you arrived at your answer

Expert Answers

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Amy currently earns $425 a week. Take her $425 earnings and multiply by 4 (weeks) to get $1,700.

What Amy spends at home on expenses and entertainment is irrelevant to what she will be spending on her trip, so it is factored out. Amy will lose a month of potential earnings of $1,700 and will have different expenses abroad.

Her $55 (visa one-time expense) + $370 (accommodations) x 4 (weeks) = $1,535.

Her $125 (weekly living expenses) x 4 = $500.

Her round-trip flight costs $975.

Now take the $1,700 (foregone earnings) + $1,535 (visa plus accommodations) + $500 (four weeks living expenses) + $975 (flight) = $4,710.

Therefore, the opportunity cost of Amy's trip is her total lost earnings of $1,700 plus the $3,010 total cost of the trip, for a total opportunity cost of $4,710.

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