In the 1960s, Ed Thorp rented an office at $1600 per month which included the costof electricity. Ed used the office to run a super computer 24/7 to analyze the casino game ofblackjack; the computer used $1900 worth of electricity per month. The alternative to renting theoffice for the computer was to put it in his garage (where he had to pay his own electricity). What was the (opportunity) cost of renting the office?

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AyBaba7 AyBaba7 · Answer 1 · 2020-03-22T07:07:58+01:00

Answer:

$300

Explanation:

Opportunity cost is expressed as that which one does without after making one's choice. It is the relative worth of alternative forgone.

For this problem, there are 2 options,

- Paying $1600 to rent an office space with electricity charges inclusive.

- And paying $1900 for electricity charges if he uses the garage for the running of his operations.

Mathematically, Opportunity Cost is given as

Opportunity cost = (Return on picking the best or chosen alternative) - (Return on picking the next best alternative)

For this question,

Return on picking the best or chosen alternative = Return on choosing to rent the office space = - $1600

Return on picking the next best alternative = Return on choosing to pay for electricity while using the garage = - $ 1900

Opportunity cost = - 1600 - (-1900) = -1600 + 1900 = $300.

Hope this Helps!!!