Opportunity Costs

1. Opportunity Costs

When Burton Cummings graduated with honors from the Canadian Trucking Academy, his father gave him a $350,000
tractor-trailer rig. Recently, Burton was boasting to some fellow truckers that his revenues were typically
$25,000 per month, while his operating costs (fuel, maintenance, and depreciation) amounted to only $18,000 per
month. Tractor-trailer rigs identical to Burton’s rig rent for $15,000 per month. If Burton was driving trucks for
one of the competing trucking firms, he would earn $5,000 per month. Burton is proud of the fact that he is
generating a net cash flow of $7,000 ($25,000 — $18,000) per month, since he would be earning only $5,000 per
month if he were working for a trucking firm.
a) Compute both Burton Cummings’s explicit costs per month and his implicit costs per month.
b) Compute the opportunity cost of the resources used by Burton Cummings each month.
c) What advice would you give Burton Cummings? Explain your advice in terms of opportunity costs.

2. Supply and Demand

The Wall Street Journal reported that recent law school graduates were having a very difficult time obtaining jobs
in the legal profession. Many law schools said that 10 to 20 percent of their graduates still had not found jobs.
The historical average had been 6 to 8 percent. Many recent graduates were taking jobs outside law at much lower
wages than were typically paid to beginning lawyers. Based on this information, what would be your prediction
about lawyers’ salaries for the future? Please explain your answers in terms of the market for lawyers fully
explaining what changes will occur to demand, supply, quantity demanded, quantity supplied, and equilibrium price  for lawyers (starting wages for lawyers).