Greg, a landscaper, is planning on opening his own landscaping company. He currently earns
$40,000 per year working for his uncle but he will need to quit that job. He plans to use $10,000 in savings to pay for the equipment he needs, although even after use he could sell the equipment for what he paid, $10,000. The current interest rate on savings is 5 per cent. What is the total opportunity cost incurred by Greg in running his own business?
A) $50,000
B) $40,500
C) $10,000
D) $40,000

Question

Quizplus · Accepted Answer

The total opportunity cost includes the forgone salary of $40,000, plus the forgone interest on his savings ($10,000 at 5% interest, which equals $500). Therefore, the total opportunity cost is $40,000 + $500 = $40,500.

Greg, a Landscaper, Is Planning on Opening His Own Landscaping