In opportunity cost terms, the cost of this incident to Gibbs can be estimated as?
Understand the Problem
The question is asking to calculate the opportunity cost associated with Herschelle Gibbs's suspension from cricket due to an incident. We need to consider the fines and missed earnings from matches during his suspension to estimate this cost.
Answer
R220,000
Answer for screen readers
The estimated cost of the incident to Gibbs in opportunity cost terms is R220,000.
Steps to Solve
- Calculate Total Fines The fine imposed on Gibbs due to the incident is R10,000.
$$ \text{Total fines} = R10,000 $$
- Calculate Earnings Lost from Matches Gibbs missed 3 matches, and for each match, he earns a total of R25,000 from the match fee and R50,000 from sponsorships. This total per match is:
$$ \text{Earnings per match} = R25,000 + R50,000 = R75,000 $$
Now, calculate the total earnings lost for 3 matches:
$$ \text{Total earnings lost} = 3 \times R75,000 = R225,000 $$
- Calculate Total Opportunity Cost Add the total fines and the total lost earnings to find the total opportunity cost:
$$ \text{Total opportunity cost} = \text{Total fines} + \text{Total earnings lost} $$
Calculating this gives:
$$ \text{Total opportunity cost} = R10,000 + R225,000 = R235,000 $$
However, Gibbs also pays R5,000 per match for insurance. For 3 matches, the insurance costs will be:
$$ \text{Total insurance cost} = 3 \times R5,000 = R15,000 $$
Finally, subtract the insurance costs from the total opportunity cost:
$$ \text{Net opportunity cost} = R235,000 - R15,000 = R220,000 $$
The estimated cost of the incident to Gibbs in opportunity cost terms is R220,000.
More Information
The calculation includes both direct financial penalties and the lost opportunity earnings from matches, alongside associated costs like insurance. This comprehensive approach gives a full picture of the financial impact of the suspension.
Tips
- Forgetting to account for both match fees and sponsorship earnings.
- Neglecting to consider additional costs such as insurance when calculating total opportunity costs.
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