Jane wins $100,000 in the lottery and immediately uses her winnings to open a donut shop. Her direct costs for the first year are $50,000. Alternatively, Jane could have placed her lottery winnings in a savings account earning 10 percent annual interest. Jane's total cost is

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Jane's total cost includes both her direct costs and the opportunity cost of not investing her winnings. Her direct costs are $50,000, and the opportunity cost (the interest she would have earned by placing her winnings in a savings account) is $10,000 (10% of $100,000). Therefore, her total cost is $60,000.

Jane Wins $100,000 in the Lottery and Immediately Uses Her