Question

Joe wants to start his own business, which will require that he purchase a factory that costs $400,000. Joe currently has $500,000 in the bank earning 3 percent interest per year. a. If Joey purchased the factory with his own money, what is the annual implicit opportunity cost of purchasing the factory?

Answer 1

12,000

Step-by-step explanation:

This opportunity cost is calculated by

3%*400,000 = 12,000 in interest

So, the opportunity cost for purchasing a factory is what joe sacrifice in terms of interest from bank. So the amount is 12,000 dollars.

Answer 2

The annual implicit opportunity cost of purchasing the factory is $12,000.

Step-by-step explanation:

annual implicit opportunity cost = 0.03*400000

= $12,000

Therefore, The annual implicit opportunity cost of purchasing the factory is $12,000.