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3-2 Opportunity Cost of Renting You currently pay $10,000 per year in rent to a landlord for a $100,000 house, which you are considering purchasing.

3-2 Opportunity Cost of Renting
You currently pay $10,000 per year in rent to a landlord for a $100,000 house, which you are
considering purchasing. You can qualify for a loan of $80,000 at 9% if you put $20,000 down
on the house. To raise money for the down payment, you would have to liquidate stock earning a
15% return. Neglect other concerns, like closing costs, capital gains, and tax consequences of
owning, and determine whether it is better to rent or own.
3-3 Opportunity Cost of Steel
Your firm usually uses about 200 to 300 tons of steel per year. Last year, you purchased
100 tons more steel than needed (at a price of $200 per ton). In the meantime, the price of steel
jumped to $250 per ton delivered (which means that any firm selling the steel must pay any
shipping costs), and the price has since stabilized at that price. The cost of shipping steel to
CHAPTER 3 BENEFITS, COSTS, AND DECISIONS 37
NOT FOR

This question was asked on Jan 15, 2013.

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