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One year ago, Jack and Jill set up a vinegar-bottling firm (called JJVB). Use the question facts to calculate JJVB's opportunity cost of production during its first year of operation. JJVB's opportunity cost of production during its first year of operation is $ __________. (do not include any commas in your answer) Prof. Taylor's note: assume the 6% interest rate stated in fact 8 applies to all money in the bank

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Answer: $111,000

Explanation:

The opportunity costs incurred by Jack and Jill include:

  • Wages of $15,000 paid to employee
  • Cost of equipment and goods and services
  • Interest sacrificed on capital put into business
  • Salary that Jack gave up
  • Hours of leisure given up by Jill
  • Depreciation of equipment

Opportunity costs were therefore:

= 15,000 + 30,000 + 10,000 + (30,000 * 5%) + 40,000 + (25 * 10 * 50 weeks) + (30,000 - 28,000)

= $111,000

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