Chapter 13, Problem 5E

Exercise 6-5A    Opportunity costs

Norman Dowd owns his own taxi, for which he bought a $10,000 permit to operate two years ago. Mr. Dowd cams $30,000 a year operating as an independent but has the opportunity to sell the taxi and permit for $36,500 and take a position as dispatcher for Carter Taxi Co. The dispatcher position pays $27,500 a year for a 40-hour week. Driving his own taxi, Mr. Dowd works approximately 55 hours per week. If he sells his business, he will invest the $36,500 and can earn a 10 percent return.

Required

1. a. Determine the opportunity cost of owning and operating the independent business.
2. b. Based solely on financial considerations, should Mr. Dowd sell the taxi and accept the position as dispatcher?
3. c. Discuss the qualitative as well as quantitative factors that Mr. Dowd should consider.