Scenario 14-3
As part of an estate settlement Mary received $1 million.She decided to use the money to purchase a small business in Anywhere,USA.Her business operates in a perfectly competitive industry.If Mary would have invested the $1 million in a risk-free bond fund she could have made $100,000 each year.She also quit her job with Lucky.Com Inc.to devote all of her time to her new business;her salary at Lucky.Com Inc.was $75,000 per year.
-Refer to Scenario 14-3.What are Mary's opportunity costs of operating her new business?

Question

Quizplus · Accepted Answer

Mary's opportunity cost is the highest possible return she could have earned if she had chosen the next best option available to her. In this case, her next best option was to invest in a risk-free bond fund, which would have given her $100,000 per year. Additionally, she gave up her salary of $75,000 per year to operate her new business. Therefore, her opportunity cost is $100,000 (from the bond fund) + $75,000 (her salary) = $175,000.

Scenario 14-3 As Part of an Estate Settlement Mary Received $1 Million.She