James used $200,000 from his savings account that paid an annual interest of 10% to purchase a hardware store.After one year,James sold the business for 300,000.An Economist calculated his profit to be:

Question

Quizplus · Accepted Answer

James's profit is calculated by subtracting the opportunity cost of the interest he would have earned from his savings. The interest on $200,000 at 10% is $20,000. Therefore, his profit is $300,000 (sale price) - $200,000 (initial investment) - $20,000 (lost interest) = $80,000.

James Used $200,000 from His Savings Account That Paid an Annual