Scenario 8.1: Juan used to work for a law firm where he earned a yearly salary of $50,000. He got tired of working for another firm so he opened his own law office. He now pays his secretary $20,000 per year and spends $25,000 for rent and utilities. He earns $100,000 in annual revenue. Refer to Scenario 8.1 above. Juan's opportunity cost (economic costs) of running his own business is

$0

Explanation:

Juan's opportunity cost (economic costs) of running his own business is $0 . This is because Juans main costs for running his business are paying his secretary $20,000 per year and spending $25,000 for rent and utilities. Adding this up totals $45,000 but Juan makes a total of $100,000 a year with his business. This means that

$100,000 - $45,000 = $55,000

He is making a total of $55,000 a year with his business. Since he was only making $50,000 a year in his previous law firm this means that he is making $5000 more than his previous law firm with his own business. Therefore, making the opportunity cost $0 since the opportunity that he chooses is more valuable than the opportunity that he left behind.

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