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opportunity cost. When determining the cost of something, the pertinent comparison isn’t with zero – but with what you’d do with the money if you didn’t do it. . Cost of renting a house, vs buying?. Rent: $800/mo, say. Buying: $160,000, say. Break even point: after 200mos (18yrs)?
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opportunity cost When determining the cost of something, the pertinent comparison isn’t with zero – but with what you’d do with the money if you didn’t do it.
Cost of renting a house, vs buying? • Rent: $800/mo, say. • Buying: $160,000, say. • Break even point: after 200mos (18yrs)? • But, you’d own the house, and never need to pay rent again, ever! (?) • But if you had $160,000 you could invest it for $4800/yr, or $400/mo. So break-even point is really 400mos. Opportunity cost of buying a house includes the loss of potential investment.
how much does it cost to go to RU? • $8800/yr tuition, fees, books, supplies • $10000/yr room and board, transport, expenses But the best answer also involves what you’d do if you weren’t in school. • Get a job! • How much does it pay? • = $16,000/yr • * 40hrs/wk • $8/hr • * 50wk/yr • So, factoring in the opportunity cost of getting a job, • the real yearly cost of RU is: • $24,800/yr
“investing in lifetimes” • But: after graduating college, you can get a better job. • Lifetime earnings w/ High School degree:$1.2million ! • Lifetime earnings w/ Bachelor’s degree:$2.1million !! So the cost of college is high, but the lifetime opportunity cost is a gain.