Until recently you worked as an accountant, earning $30,000 annually. Then you i

Question

Until recently you worked as an accountant, earning $30,000 annually. Then you inherited a piece of commercial real estate bringing in $12,000 in rent annually. You decided to leave your job and operate a video rental store in the office space you inherited. At the end of the first year, your books showed total revenues of $60,000 and total costs of $30,000 for video purchases, utilities, taxes and supplies. What is the total cost of operating the video store?

A) $60,000
B) $42,000
C) $30,000
D) $12,000
E) none of the above

Explanation / Answer

Until recently you worked as an accountant, earning $30,000 annually. Then you inherited a piece of commercial real estate bringing in $12,000 in rent annually. You decided to leave your job and operate a video rental store in the office space you inherited. At the end of the first year, your books showed total revenues of $60,000 and total costs of $30,000 for video purchases, utilities, taxes and supplies. What is the total cost of operating the video store?

We have to factor in the opportunity cost of your previous job.

Here, our net revenue - our salary, if you will - is $60 - $30 = $30,000

Since our previous salary was the same, there are no opportunity costs and hence the cost of operating the video store is $30,000.

A) $60,000
B) $42,000
C) $30,000
D) $12,000
E) none of the above

I hope that you found this answer useful towards your studies. It took a considerable amount of thought, time, and effort to compose, and and I'd sincerely appreciate a lifesaver rating! It would really make my day! :)

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