Question

Jacinda quit her job as a blackjack dealer where she made​ $42,000 per year to start her own florist business. Her business expenses are​ $14,000 per year on​ rent, $21,000 per year on​ supplies, and​ $9,000 per year on part time help. As for her personal​ expenses, her apartment costs her​ $12,000 per year and her personal bills are an extra​ $6,000 per year. What is​ Jacinda's opportunity cost of running the​ business?

Answer 1

Jacinda's opportunity cost of running her florist business includes the $42,000 annual salary she gave up by quitting her blackjack dealer job and her explicit business expenses, totaling $44,000 per year.

Step-by-step explanation:

The opportunity cost of running a business includes not only the explicit monetary costs but also the implicit costs, which are the benefits foregone when choosing one alternative over another. In Jacinda's case, she gave up her job as a blackjack dealer, which paid $42,000 per year, to start her florist business. Therefore, this foregone salary is part of her opportunity cost. Additionally, her business expenses total $44,000 per year ($14,000 on rent, $21,000 on supplies, and $9,000 on part-time help). We do not include personal expenses in the calculation of opportunity cost, as these would likely be paid whether she ran the business or worked as a dealer.

Answer 2

Opportunity costs = 42,000 + 14,000 + 21,000 + 9,000 = $86,000

Step-by-step explanation:

Opportunity cost is the cost of doing the next alternative.

In this case the opportunity cost would be the profits she has forgone and the costs she incurred to run the florist shop. Personal expenses are not included as we assume apartment and bill costs would be payable regardless of any decision.

Opportunity Costs = Next alternative + Costs of being a florist

Opportunity costs = 42,000 + 14,000 + 21,000 + 9,000 = $86,000

If Jacinda were making profits, we would subtract them from the salary that she could have earned.

Hope that helps.