Chantal has a full-time job as a geological engineer and earns an annual after -tax salary of $85 000. She decides to leave her job for 6 months to scuba dive on the Great Barrier Reef in Australia, and incurs costs of $7500 for course equipment and certification, $2500 for airfare, and $12 000 for regular living expenses in Australia
Equal to her living expenses at home). What is Chantalʹs opportunity cost for this 6 -month, unpaid leave of absence?
A) $12 000
B) $22 000
C) $42 000
D) $52 500
E) $65 000

Question

Quizplus · Accepted Answer

To calculate Chantal's opportunity cost, we need to determine how much she would have earned if she had continued to work for those 6 months.

Her annual after-tax salary is $85,000, so her before-tax salary would be higher. Assuming a marginal tax rate of 30%, her before-tax salary would be approximately $121,429. This means that for 6 months of work, she would earn approximately $60,714.50 before taxes.

Her costs for scuba diving on the Great Barrier Reef are $7500 + $2500 + $12,000 = $22,000.

Therefore, Chantal's opportunity cost for taking a 6-month, unpaid leave of absence to scuba dive on the Great Barrier Reef is $60,714.50 - $22,000 = $38,714.50.

The closest answer choice is D, $52,500, which is higher than the calculated opportunity cost. This means that Chantal's opportunity cost is actually lower than the cost of her living expenses in Australia, as well as the cost of her course equipment and certification, and airfare.

Chantal Has a Full-Time Job as a Geological Engineer and Earns