Scenario 14-4
Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research, Inc., where he used to earn $75,000 per year.
-Refer to Scenario 14-4. What is Victor's opportunity costs of operating his new business?
A)$25,000
B)$75,000
C)$100,000
D)$175,000

Question

Quizplus · Accepted Answer

Victor's opportunity cost of operating his new business is equal to the income he could have earned by investing in a risk-free bond fund ($100,000) plus the income he gave up by quitting his job ($75,000), which is a total of $175,000. Therefore, the best choice is D.

Scenario 14-4 Victor Is the Recipient of $1 Million from a Lawsuit