Jim left his previous job as a sales manager and started his own sales consulting business. He previously earned $70,000 per year, but he now pays himself $25,000 per year while he is building the new business. What is the economic cost of the time he contributes to the new business?
A) $25,000 per year
B) zero
C) $70,000 per year
D) $45,000 per year

Question

Quizplus · Accepted Answer

The economic cost of Jim's time is the opportunity cost, which is the value of his next best alternative. In this case, the opportunity cost is his previous salary of $70,000 per year minus his current salary of $25,000 per year, which equals $45,000 per year. Therefore, the economic cost of his time is $45,000 per year.

Jim Left His Previous Job as a Sales Manager and Started