Question

Kurt is a professional golfer, who use to work as an engineer. Aside from the money he enjoys both jobs equally. He earned $80,000 as an engineer but now earns $400,000 as a golfer. As a professional golfer with $400,000 in total earnings how much was economic rent and how much was opportunity cost? Explain your answer

Answer 1

Answer:Economic rent-$320,000

Opportunity Cost-80,000

Explanation:

Economic rent is the extra amount or addition earned by a production resource here and in this context,Mr Kurt is the resource.In this scenario,the extra amount he earned as a professional golfer having quit engineering for it and thus had a step-up(addition) of $320,000.

While the opportunity cost which known as the alternative forgone in order in favour of another alternative in a decision process here is $80,000.In this case,he had to forego engineering job($80,000) and therefore concentrate on professional golfing which paid him more(400,000) not omitting the fact that he could have engaged in the two jobs at same time.