Another scenario that illustrates the concept of opportunity costs is when Gilbert can be employed as an accountant at an annual salary of $60,000 or he chooses to start his own business.
The store owned by Gilbert could have been rented out at an annual lease of $15,000. If Gilbert's store generates annual revenue of $200,000 with a cost of goods worth $100,000 and selling and administrative expenses that cost him $25,000 annually.
If Gilbert chooses to open the store, his economic gain from running the business will be <u>$20,000</u> ($200,000 - $80,000 - $25,000 - $15,000 - $60,000).
Whereas, if he chooses employment as an accountant, his economic profit will be <u>$75,000</u> ($60,000 + $15,000).
Thus, based on the concept of opportunity costs, which gives rise to economic profit, Gilbert will be advised to take up employment instead of starting his own business.
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