Learn Before
Reservation Option
When a person makes a choice from several available alternatives, the reservation option is their next best alternative. It is also commonly referred to as a fallback option.
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Social Science
Empirical Science
Science
Economics
Economy
Introduction to Microeconomics Course
CORE Econ
Ch.6 The firm and its employees - The Economy 2.0 Microeconomics @ CORE Econ
The Economy 2.0 Microeconomics @ CORE Econ
Related
Comparing Alternatives in Decision-Making (Concert vs. Babysitting)
Decision-Making for a Taxi Driver (Australian Open vs. Work)
Choosing Between a Paid Theatre Concert and a Free Park Concert
Scarcity
Reservation Option
You have a free ticket to a concert tonight which you value at $50. You could, instead, work a shift at your job and earn $70, or you could babysit for a neighbor and earn $40. Assuming these are your only three options and you can only choose one, what is the opportunity cost of attending the concert?
Analyzing a Summer Decision
Evaluate the following statement: A person has three mutually exclusive options for their evening: 1) Go to a concert they value at $50, 2) Work a shift and earn $80, or 3) Read a book they value at $20. If they decide to work the shift, their opportunity cost is $70, representing the sum of the values of the concert ($50) and the book ($20) that they gave up. True or False?
For each economic decision described below, match it with the correct statement of its opportunity cost.
Analyzing the True Cost of a Decision
Explaining Opportunity Cost
A student has three mutually exclusive options for their Saturday afternoon: they can work a 4-hour shift at the campus library for $15 per hour, go to a movie with friends which they value at $40, or take a paid online survey that will earn them a total of $50. If the student chooses to work at the library, the opportunity cost of this decision is $____.
An individual has decided to spend their Saturday afternoon working a part-time job. To correctly identify the opportunity cost of this decision, they must follow a logical process. Arrange the following steps into the correct sequence.
The Baker's Dilemma
Alex is deciding how to spend their Friday night. They can either go to a movie, for which a ticket costs $12 and which they value at $30, or they can work a tutoring session and earn $40. These are Alex's only two options. What is the opportunity cost of choosing to go to the movie?
Economic Profit vs. Accounting Profit
Decision making under scarcity
Shareholder Investment Principle
Economic Cost
Wage as the Opportunity Cost of Free Time
Karim's Work-Leisure Decision in Madrid
Economic Rent
Learn After
A freelance graphic designer is offered a project that will pay $1,500 and take two weeks to complete. The designer's only other work opportunity for that same two-week period is a series of smaller tasks for a regular client that would pay a total of $1,200. The designer finds the $1,500 project more interesting and decides to accept it. Based on this information, what is the designer's reservation option?
Identifying the Reservation Option
Analyzing a Choice with a Reservation Option
A company is considering upgrading its software system. The new system costs $50,000 but is projected to increase annual profits by $20,000. The company's other options are to continue using the current system, which has no new costs but also no new profit, or to switch to a different, cheaper software that costs $10,000 and is projected to increase annual profits by $12,000. The company decides to purchase the new $50,000 system. Based on this information, the company's reservation option is to continue using the current system.
Calculating the Value of a Reservation Option
An individual is deciding between three mutually exclusive options for the summer:
- A full-time internship that pays a total of $5,000.
- Working a local job that pays a total of $4,000.
- Taking an unpaid research position that offers valuable experience but no income.
The individual determines that the internship is their best option and the local job is their second-best option. If the pay for the local job suddenly increases to $5,500, how does this change affect the economic evaluation of the individual's choice?
A student is deciding how to spend their spring break. They have several options:
- Go on a trip to Florida with friends, which they value the most. The trip costs $800.
- Work a temporary job earning $600. They consider this their second-best option.
- Stay home and study for exams, which they consider their third-best option.
The student chooses to go on the trip to Florida. Match each element of the scenario to its correct economic description.
Critiquing a Business Decision
Analyzing Economic Surplus
Strategic Business Relocation
A Graduate's Decision with a Lower-than-Expected Wage Offer
Reservation Wage as the Indifference Point for Job Acceptance