Question

"Bubba is a shrimp fisherman who used $2,000 from his personal savings account to buy a boat and equipment for his shrimp business. The savings account paid 2% interest. What is Bubba's annual opportunity cost of the financial capital that he invested in his business

Answer 1

Bubba's annual opportunity cost for using his $2,000 to buy a boat and equipment for his shrimp business, instead of leaving it in a savings account with a 2% interest rate, is $40 per year.

Step-by-step explanation:

The annual opportunity cost of the financial capital that Bubba invested in his shrimp business is the amount of interest he would have earned if he had left the $2,000 in his savings account. Since the savings account paid 2% interest, the opportunity cost is 2% of $2,000.

To calculate this, we use the formula for simple interest: Interest = Principal × Rate × Time. Here, the principal is $2,000, the rate is 2% (or 0.02 as a decimal), and the time is 1 year, since we are interested in the annual opportunity cost.

So, Bubba's opportunity cost is $2,000 × 0.02 × 1 = $40 per year.

Answer 2

Options:

A. $20

B. $200

C. $40

D. $400

Answer:C. $40

Explanation: Opportunity cost is a term used in Economics to describe the value of the next most profitable alternative of this an investor puts his or her resources into,in this case the opportunity cost for Bubba is the percentage of the interest which Bubba earned from the interest.

Opportunity cost for Bubba can be calculated as follows

(2%/100)* $2,000=$40.

Opportunity cost helps economists to ensure that resources are effectively put to use.