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John has decided to start his own lawn-mowing business. To purchase the mowers and the trailer to transport the mowers, John withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is John's annual opportunity cost of the financial capital that has been invested in the business?
a. $30b. $140c. $170d. $300

Respuesta :

Samawati

Answer:

$ 170

Explanation:

Opportunity cost in the value of the missed alternative. It is the foregone benefit as a result of choosing one item over another. In the case of John, the opportunity cost is the interest receivable forfeited as a result of engaging in the lawn moving business.

The interest missed include :

     1. 3 percent  interest on $ 1000 savings

= 3/100 x 1000= $ 30

7 percent interest on $ 2000 on loan

= 7/100 x 2000=  $ 140

Total opportunity cost = $30 + $ 140

    = $ 170

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