Supposed you are a staunch fun of the Houston Rockets basketball team, and they have a game with the Boston Celtics. You are offered a free ticket to the game which is on the same night that Rihanna is performing, and her concert is your next-best alternative activity. Tickets to see Rihanna cost $280. On any given day, you would be willing to pay up to $500 to see and hear Rihanna perform. Assume there are no other costs of seeing either event. Based on this information, at a minimum, how much would you have to value seeing the Rockets and Celtics game to accept the ticket and go to the game?
To determine how much you would have to value seeing the Rockets and Celtics game in order to accept the ticket and go to the game, we need to compare the value of the game to the value of attending Rihanna's concert.
You mentioned that on any given day, you would be willing to pay up to $500 to see and hear Rihanna perform. However, as the ticket to see her costs $280, we can assume that you consider attending her concert as your next-best alternative activity to watching the basketball game.
Therefore, your minimum valuation to accept the ticket and go to the game would be the difference between the cost of Rihanna's concert ticket ($280) and your willingness to pay to attend her performance ($500).
Minimum valuation = $500 - $280 = $220
So, you would have to value seeing the Rockets and Celtics game at least $220 to accept the ticket and choose attending the game over Rihanna's concert.
To evaluate how much you would have to value seeing the Rockets and Celtics game to accept the ticket and attend the game, we can use the concept of opportunity cost. Opportunity cost refers to the value of the next-best alternative that we forego when making a decision.
In this scenario, the next-best alternative activity is attending Rihanna's concert. The cost of attending the concert is $280, and you mentioned that you would be willing to pay up to $500 to see and hear Rihanna perform on any given day.
Therefore, to calculate the minimum value you would have to place on seeing the Rockets and Celtics game, we subtract the cost of attending the concert from your willingness to pay for the concert.
Minimum value of attending the Rockets and Celtics game = Rihanna's concert value - Concert ticket cost
Minimum value of attending the Rockets and Celtics game = $500 - $280
Minimum value of attending the Rockets and Celtics game = $220
Therefore, you would have to value seeing the Rockets and Celtics game at a minimum of $220 to accept the ticket and go to the game.
To determine how much you would have to value seeing the Rockets and Celtics game in order to accept the ticket and attend the game, you need to compare the value you place on the game to the value you place on attending Rihanna's concert.
In this scenario, you have stated that you would be willing to pay up to $500 to see and hear Rihanna perform. However, if you choose to attend the Rockets and Celtics game, you will receive a free ticket. Therefore, the opportunity cost of attending the game is the cost of the Rihanna concert ticket, which is $280.
To calculate the minimum value you would have to place on seeing the Rockets and Celtics game, subtract the cost of the Rihanna concert ticket from the maximum amount you would be willing to pay to attend her concert:
$500 (maximum value for Rihanna concert) - $280 (cost of Rihanna concert ticket) = $220
Therefore, you would have to value seeing the Rockets and Celtics game at a minimum of $220 in order to accept the ticket and attend the game.