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(Scenario: Accounting and Economic Profit) use scenario: accounting and economic profit. What is the opportunity cost of Wang's $100,000inheritance being used to start his business?

Rather than put the $100,000 that his grandmother left him in a mutual fund and earn 5% each year, Tommy Wang quit his job that paid $60,000 per year and used the $100,000 to start Wang's Wicker Furniture Store. He rented a showroom for $20,000 for the year, purchased $60,000 in wicker furniture, and incurred costs of $40,000 for sales help and advertising.

A. $100,000

B. $5,00

C $10,000

D $ 0

Respuesta :

Answer:

(B) $65,000

Explanation:

Opportunity costs refers to the benefits that a person is sacrificing for selecting some other alternatives. Opportunity cost is also known as the implicit costs.

Here, the implicit costs are as follows:

(i) Interest income from investing in a mutual fund:

= $100,000 × 5%

= $5,000 per year

(ii) Money income from the job left = $60,000 per year

Therefore, the opportunity cost for starting the business is as follows:

= Interest income + Salary foregone

= $5,000 + $60,000

= $65,000

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