Scenario 12-1
Calvin wants to start his own business making candles.He can purchase a candle factory that costs $400,000.Calvin currently has $500,000 in the bank earning 3 percent interest per year.
-Refer to Scenario 12-1.If Calvin purchases the factory with his own money,what is the annual implicit opportunity cost of purchasing the factory?
A) $0
B) $3,000
C) $12,000
D) $15,000

Question

Quizplus · Accepted Answer

The annual implicit opportunity cost of purchasing the factory is the interest Calvin could have earned on his $400,000 if he had left it in the bank. Therefore, the annual implicit opportunity cost is 3% of $400,000, which is $12,000. Choosing option C, which is to pay for the factory with his own money, would result in an annual implicit opportunity cost of $12,000.

Scenario 12-1 Calvin Wants to Start His Own Business Making Candles.He Can