Question

You are thinking about quitting your job and open new business for yourself. You currently earn $120,000 per year as an employe (it will be same amount of wage for at least next year). You believe that you can make $380,000 as an independent advisor in your new business. Your start-up expenses are expected to be $240,000 over the next year. If you decide to keep your current job, what is the expected opportunity cost of this decision? Do you think it's worth changing a job?

Answer 1

With startup business,

Accounting profit earned = 380000 - 240000

Accounting profit earned = $140000

So, expected opportunity cost of doing the current job is potential profit to be earned with the startup that is $140000.

If job is changed and startup is adopted, then:

Economic profit = 140000 - 120000

Economic profit = $20000

Since economic profit after adjusting the current salary in the job, is still positive, then it is wise and good to change the job and go for the startup.