Question

Suppose I want to open my own restaurant. Currently I am working asa Financial Analyst at a top bank earning $175,000 a year, which I willhave to quit to open a restaurant. I am also going to invest $100,000of my savings which were earning an average annual rate of 6%.Whatis my opportunity cost(implicit cost) of opening the restaurant

Answer 1

Answer: $181000

Explanation:

Amount earned in a bank = $175000

Money invested = $100000

Interest Rate = 6%

Interest earned will be:

= 6% × $100000

= $6000

Therefore, the total earnings when the individual is working in the bank will be:

= $175000 + $6000

= $181000

Therefore, the pportunity cost of opening the restaurant will be the income that's foregone when working in the bank which is $181000.