[MUSIC] [MUSIC] So let's try this next example that is slightly more complex. Ellie's Tuesday morning class was cancelled. She now must decide how to spend her extra time. She has three mutually exclusive options for activities. Go to the library and study for her Econ midterm, which costs her nothing and which she values at $10, go to a movie, which costs her $5, and which she values at $30, or have lunch with a friend, which costs her $10 and which she values at $55. What is Ellie's opportunity cost of having lunch with her friend? Like in the previous examples, we want to take into account both the cost of going to lunch and the opportunity cost of Ellie's time. The difference is that in this example, Ellie has two alternative uses of her time. She could decide to go to the library and study for her midterm. Or, she could decide to go to a movie. So let's go ahead and calculate the net benefit of each one of these options. We'll take into account the benefit, And we'll take into account the dollar cost. And the difference between the two will be the net benefit. If Ellie goes to the library, we're told that the benefit of studying is equal to $10, and we're also told that the cost is zero. So the net benefit of going to the library is ten dollars. If Ellie goes to the movie, we're told that the benefit of going to the movie is $30, but there's a cost of going to the movie and it is $5, which means the net benefit of going to the movie is 30 minus 5, or $25. Ellie can only do one of these two things. So, presumably she would chose the best of these things, or at least we have to take into account the next best alternative. And the next best alternative is the alternative with the highest net benefit. And in this case, it is going to the movie. So, now we're ready to calculate the opportunity cost of going to lunch. And, we realize the opportunity cost of going to lunch includes what? It includes the dollar cost of going to lunch, and it also includes the opportunity cost of time, or the value of time. The dollar cost of going to lunch, we're told, is equal to $10. The opportunity cost of time is the foregone net benefit of the best alternative, which is the movie, so that would be $25. And and so we see that the opportunity cost of going to lunch is 10 plus 25, or $35.