Question

2. Problems and Applications Q2 Your aunt is thinking about opening a hardware store. She estimates that it would cost $600,000 per year to rent the location and buy the stock. In addition, she would have to quit her $55,000 per year job as an accountant. What is the opportunity cost of something? What you pay for it The cost to produce it The time it takes to do something What must be given up to acquire it Your aunt's opportunity cost of running a hardware store for a year is. Suppose your aunt thought she could sell $680,000 worth of merchandise in a year. Your aunt open the store.

Answer 1

Answer:

What is the opportunity cost of something?

• What must be given up to acquire it

Opportunity cost is the extra costs or benefits lost from choosing one activity or investment over another alternative.

Your aunt's opportunity cost of running a hardware store for a year is.

• $55,000 in lost wages and the cost of capital invested (which is not given).

Suppose your aunt thought she could sell $680,000 worth of merchandise in a year.

• She should open the store because the economic profit = $680,000 (total revenue) - $600,000 (accounting costs) - $55,000 (opportunity costs) = $25,000

Economic profit = accounting profit (total revenues - total expenses) - opportunity costs