Easy to Understand Example of Opportunity Cost

My wife was talking to a friend about daycare.

Her friend works four days and is off one day a week.  She was disappointed she couldn’t find a daycare that would let them pay for four days a week.   They would have to pay for five, even though they would use the daycare only four days each week.

My wife explained that if they didn’t pay for five days a week, the daycare center could easily find another kid to fill the slot for five days a week so the day care center could maximize their sales, but it would be much harder to find parents needing to use the daycare just one day week, that happened to coincide with her day off.

I heard her say that and tried to explain to her that she understands the economics concept of opportunity cost.  The opportunity cost of the daycare would be forgone revenue of a five-day-a-week child, when they have the capacity for that, to accept the four-day-a-week child.

I went on to explain that if you could find a daycare that would take her money for four days a week, then she might want to consider taking that as a sign that daycare may not be very good, so paying more for the 5-day day care would be well worth it.

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