Question

You have two choices: take a job that pays $60,000 the first year or open your own small business and make $45,000 the first year. If you decide to open your own small business, the opportunity cost is:

A0

B15000

C 45000

D 60000

E 105000

Answer 1

Solution:

Opportunity cost is the Return from an investment alternative forgone, when another investment alternative is chosen.

The opportunity cost can be calculated as = Return from alternative forgone –Return from alternative chosen

If the alternative of opening an own small business is selected, the option of earning a salary of $ 60,000 in the first year is to be forgone, since only one of the two options is to be chosen.

Thus the Opportunity cost is

= Salary of the first year from a job offer that was forgone – Return in the first year from starting the own business

= $ 60,000 - $ 45,000 = $ 15,000

The solution is Option B. $ 15,000