Chapter 10, Problem 1SPA

To determine

The calculation of the opportunity cost.

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

Particulars	Cost (in $)
Wages paid	20,000
Interest forgone on $50,000 which could be used to pay for mortgage loan	3,000 $\left(50,000\times \frac{6}{100}\right)$
Income forgone	30,000
Leisure forgone	15,000 $\left(30\times 500\right)$
Depreciation cost of equipment	2,000 $\left(30,000-28,000\right)$
Goods and services bought from other firms	10,000
Total opportunity cost	80,000

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.