In deciding whether to stay in school and earn a degree or work full time, the wages lost by staying in school is a(n) ______ cost of earning the degree.

In deciding whether to stay in school and earn a degree or work full time, the wages lost by staying in school is a(n) ______ cost of earning the degree.

• A. fixed
• B. opportunity
• C. sunk
• D. marginal

Answer: (B)

The main concept is opportunity cost—the value of the best alternative you give up when you make a choice. When you stay in school to earn a degree, you forgo the wages you could be earning if you worked full time during those years. That foregone income represents the opportunity cost of pursuing the degree. It isn’t a sunk cost, since it’s not money already spent that can’t be recovered; nor is it a fixed cost (which doesn’t change with the level of activity) or a marginal cost (the cost of one additional unit of output). The wages you sacrifice are simply the alternative earnings you sacrifice by choosing schooling. For example, if you would have earned $30,000 per year, two years in school imply an opportunity cost of about $60,000.

The main concept is opportunity cost—the value of the best alternative you give up when you make a choice. When you stay in school to earn a degree, you forgo the wages you could be earning if you worked full time during those years. That foregone income represents the opportunity cost of pursuing the degree. It isn’t a sunk cost, since it’s not money already spent that can’t be recovered; nor is it a fixed cost (which doesn’t change with the level of activity) or a marginal cost (the cost of one additional unit of output). The wages you sacrifice are simply the alternative earnings you sacrifice by choosing schooling. For example, if you would have earned $30,000 per year, two years in school imply an opportunity cost of about $60,000.