Reference no: EM132364837

Suppose you run a lawn-cutting business and use solar-­powered equipment (mower, edger, blower, truck) that you could sell tomorrow for $5,000. Instead of cutting lawns, you could work as a janitor for $300 per week. You have a ­savings account that pays a weekly interest rate of 0.20 percent (or $0.002 per dollar). What is your weekly cost of cutting lawns?

We can use the principle of opportunity cost to compute the cost of the lawn business. The opportunity cost of the $5,000 you have invested in the business is the $10 weekly interest you could have earned by selling the equipment and investing the $5,000 in your savings account. Adding in the opportunity cost of cutting lawns instead of earning $300 as a janitor, the weekly cost is $310.