Mosti, a materials engineer, has discovered a groundbreaking new way to make recycled plastic stronger.He is looking to exploit this discovery by starting up his own business at a cost of $500 000.Unfortunately Mosti has only $200 000 in savings and must borrow the other $300 000.If the interest rate is 10%, then what, according to an economist, is the opportunity cost of starting up the business?
A)$500,000 per annum
B)$50,000 per annum
C)$30,000 per annum
D)$20,000 per annum

Question

Quizplus · Accepted Answer

The opportunity cost includes the interest Mosti could earn on his $200,000 savings and the interest he must pay on the $300,000 loan. At 10%, this totals $20,000 + $30,000 = $50,000 per annum.

Mosti, a Materials Engineer, Has Discovered a Groundbreaking New Way