Question

ictor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year. Refer to Scenario 14-3. What is Victor's opportunity costs of operating his new business? a. $25,000 b. $100,000 c. $175,000 d. $75,000

Answer 1

Answer:

Option (c) is correct.

Explanation:

Opportunity cost is defined as the benefit that is foregone from the next best alternative. It is measured or calculated in monetary as well as in non monetary terms.

Therefore,

Victor's opportunity costs of operating his new business:

= Money income from investing in bonds + Money income from working as a market analyst

= $100,000 + $75,000

= $175,000