Question

​greg, a​ landscaper, is planning on opening his own landscaping company. he currently earns​ $40,000 per year working for his uncle but he will need to quit that job. he plans to use​ $10,000 in savings to pay for the equipment he​ needs, though even after use he could sell the equipment for what he​ paid, $10,000. the current interest rate on savings is 5 percent. what is the total economic cost incurred by greg in running his own​ business?

Answer 1

Answer:

The total economic cost is $40,500 per year

Explanation:

The total economic cost per year is equal to the sum of:

* The opportunity cost relating to sacrificing the current work Greg is working on which is equal to his yearly salary of : $40,00.

* The opportunity cost relating to sacrificing the interest income earned on $10,000 saving, which he is now used for purchasing equipment, which is calculated as: 10,000 * current rate of savings = 10,000* 5% = $500 ( total cost of equipment is not included because e could sell the equipment for what he​ paid later on).

=> So, total economic cost per year is $40,000 + $500 = $40,500.