Sebastian decides to open a tree farm. When deciding to open his own business, he turned down two separate job offers of $25,000 and $30,000 and withdrew $20,000 from his savings. Sebastian's savings account paid 3 percent interest. He also borrowed $20,000 from his brother, whom he pays 2 percent interest per year. He spent $15,000 to purchase supplies and earned $50,000 in revenue during his first year. What are Sebastian's implicit costs from running his own business?
A)$30,600
B)$55,600
C)$50,000
D)$75,600

Question

​Sebastian decides to open a tree farm. When deciding to open his own business, he turned down two separate job offers of $25,000 and $30,000 and withdrew $20,000 from his savings. Sebastian's savings account paid 3 percent interest. He also borrowed $20,000 from his brother, whom he pays 2 percent interest per year. He spent $15,000 to purchase supplies and earned $50,000 in revenue during his first year. What are Sebastian's implicit costs from running his own business?
A)​$30,600
B)​$55,600
C)​$50,000
D)​$75,600

Quizplus · Accepted Answer

- The opportunity cost of turning down the job offers is: $25,000 + $30,000 = $55,000
- The implicit cost of withdrawing $20,000 from his savings account is: $20,000 x 3% = $600
- The implicit cost of paying 2% interest to his brother on the borrowed $20,000 is: $20,000 x 2% = $400
- Therefore, the total implicit cost is: $55,000 + $600 + $400 = $30,600

​Sebastian Decides to Open a Tree Farm

Sebastian Decides to Open a Tree Farm