John has decided to start his own lawn-mowing business.To purchase the mowers and the trailer to transport the mowers,John withdrew $1,000 from his savings account,which was earning 3% interest,and borrowed an additional $2,000 from the bank at an interest rate of 7%.What is John's annual opportunity cost of the financial capital that has been invested in the business?

Question

Quizplus · Accepted Answer

To find the annual opportunity cost, we need to calculate the amount of interest John could have earned if he had not invested the money in the business.

For the $1,000 John withdrew from his savings account:

- Interest earned at 3% = $1,000 x 0.03 = $30

For the $2,000 he borrowed from the bank:

- Interest paid at 7% = $2,000 x 0.07 = $140

Therefore, the total annual opportunity cost is:

$30 + $140 = $170

So, the best choice is (C).

John Has Decided to Start His Own Lawn-Mowing Business