Question

Adidas decides to invest $100,000,000 into a shoe factory in Vietnam from its money market account. The money market account was earning 1% in interest per year or $1,000,000. Adidas could have also earned $400,000 from investing the $100,000,000 in a watch factory. What is its opportunity cost for Adidas based off of the information in presented this situation

Answer 1

The opportunity cost is $400000.

Step-by-step explanation:

The investment amount in shoe factory = $100,000,000

The earning from money market account = $100,000,000 × 1% = $1,000,000

The second option to invest is watch factory and the investment amount is same = $100,000,000

The earning from watch factory = $400,000

The opportunity cost is the cost of the best-forgone alternative. Therefore, if Adidas decides to invest in a shoe factory then the earning of the watch factory is the opportunity cost. So the opportunity cost of Adidas is $400,000