Jim left his previous job as a sales manager and started his own sales consulting business. He previously earned $70,000 per year, but he now pays himself $25,000 per year while he is building the new business. What is the economic cost of the time he contributes to the new business?
A) $25,000 per year
B) Zero
C) $70,000 per year
D) $45,000 per year

Question

Quizplus · Accepted Answer

The economic cost of Jim's time is the opportunity cost of what he could have earned if he had stayed in his previous job. Therefore, the economic cost is equal to his previous salary minus his current salary, which is $70,000 - $25,000 = $45,000 per year.

Jim Left His Previous Job as a Sales Manager and Started