Mr. Bigletter is employed at an annual salary of $25,000. He plans to start his own business and estimates that he can gross $30,000 annually. If he chooses to open the new business, his foregone salary is a (an):
A) Irrelevant cost
B) Sunk cost
C) Opportunity cost
D) Incremental cost

Question

Quizplus · Accepted Answer

The foregone salary is the potential income Mr. Bigletter would have earned if he had stayed in his current job. Since he has chosen to start his own business instead, this represents the opportunity cost of his decision. It is important to consider the opportunity cost when making business decisions because it represents the benefits that could have been gained by choosing an alternative course of action.

Mr Bigletter Is Employed at an Annual Salary of $25,000