Microeconomics (13th Edition)
Microeconomics (13th Edition)
13th Edition
ISBN: 9780134744476
Author: Michael Parkin
Publisher: PEARSON
Question
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Chapter 10, Problem 1SPA
To determine

The calculation of the opportunity cost.

Expert Solution & Answer
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Explanation of Solution

The opportunity cost of a firm includes the cost of the resources owned by the firm, the cost of resources supplied by the firm’s owner, and the cost of using the resources bought in the market.

The opportunity cost of JJVB includes the following as mentioned in table 1:

Table 1

ParticularsCost (in $)
Wages paid20,000

Interest forgone on $50,000

which could be used to pay for mortgage loan

3,000 (50,000×6100)
Income forgone30,000
Leisure forgone15,000 (30×500)
Depreciation cost of equipment2,000 (30,00028,000)
Goods and services bought from other firms10,000
Total opportunity cost80,000

The total opportunity cost of JJVB is $80,000.

Economics Concept Introduction

Opportunity cost: The opportunity cost is the cost of the foregone alternative, that is, the loss of other alternative when one alternative is chosen.

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