01 May Question: Juanita is deciding whether to buy a suit that she wants, as well as where to buy it. Three store…
Juanita is deciding whether to buy a suit that she wants, as well as where to buy it. Three stores carry the same suit, but it is more convenient for Juanita to get to some stores than others. For example, she can go to her local store, located 15 minutes away from where she works, and pay a marked-up price of $112 for the suit:
| Store | Travel Time Each Way | Price of a Suit |
|---|---|---|
| (Minutes) | (Dollars per suit) | |
| Local Department Store | 15 | 112 |
| Across Town | 30 | 89 |
| Neighboring City | 60 | 70 |
Juanita makes $26 an hour at work. She has to take time off work to purchase her suit, so each hour away from work costs her $26 in lost income. Assume that returning to work takes Juanita the same amount of time as getting to a store and that it takes her 30 minutes to shop. As you answer the following questions, ignore the cost of gasoline and depreciation of her car when traveling.
Complete the following table by computing the opportunity cost of Juanita’s time and the total cost of shopping at each location.
| Store | Opportunity Cost of Time | Price of a Suit | Total Cost |
|---|---|---|---|
| (Dollars) | (Dollars per suit) | (Dollars) | |
| Local Department Store | ? | 112 | ? |
| Across Town | ? | 89 | ? |
| Neighboring City | ? | 70 | ? |
Assume that Juanita takes opportunity costs and the price of the suit into consideration when she shops. Juanita will minimize the cost of the suit if she buys it from the
A) Local Department store
B) Store in the neighboring city
C) Store across town
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