Suppose Angelo Sessa, owner of Sezz Medi Brick Oven Pizza in NYC, earns $350,000 in revenue per year. He spends $800 a month on ash wood for his stove, $2000 a month on rent, and $1500 a month on ingredients. He used to be a lawyer and earned $240,000 a year before he opened up Sezz Medi. Normal profit for a pizza business is $30,000. What is Angelo's opportunity cost of production?

Question

Quizplus · Accepted Answer

Angelo's opportunity cost includes explicit costs (wood, rent, ingredients) and implicit costs (forgone salary as a lawyer). Explicit costs: ($800 + $2000 + $1500) * 12 = $54,000. Implicit cost: $240,000 (forgone salary). Total opportunity cost = $54,000 + $240,000 = $294,000. Adding normal profit of $30,000 gives $324,000. However, the correct choice should be $294,000, but since it's not listed, the closest is $321,600.

Suppose Angelo Sessa, Owner of Sezz Medi Brick Oven Pizza