Samantha is a recent fashion graduate.She started her own apparel store with an investment of $300,000.In the first year she made a profit of $60,000.If she had taken up a job as a fashion editor for a magazine, she would have earned $50,000 as salary per year.Also, she could have invested her capital, $300,000, in treasury bonds and earned an interest of $12,000.Thus, the amount $62,000 ($50,000 + $12,000)would be Samantha's _____.
A) social cost
B) break-even price
C) reservation price
D) opportunity cost

Question

Quizplus · Accepted Answer

In the scenario, the amount $62,000 ($50,000 + $12,000) would be Samantha's opportunity cost. An entrepreneur faces two types of opportunity costs: (1) forgone wages she could be earning if she were employed elsewhere and (2) the cost of capital she invested in her business, which could instead be invested in, say, the stock market or U.S. Treasury bonds.

Samantha Is a Recent Fashion Graduate