Exercise 1 (Chapter 13)-Opportunity Costs John Jones owns his own taxi, for whic
ID: 2598223 • Letter: E
Question
Exercise 1 (Chapter 13)-Opportunity Costs John Jones owns his own taxi, for which he bought a $10,000 permit to operate two years ago. Mr. Jones earns $30,000 a year operating as an independent but has the opportunity to sell the taxi and permit for $36,500 and take a position as a dispatcher for Webber Taxi Co. The dispatcher position pays $27,500 a year for a 40-hour week. Driving his own taxi, Mr. Jones works approximaely 55 hours per week. If he sells his business, he will invest the $36,500 and can earn a 10 percent return. Required: Determine the opportunity cost of owning and operating the independent business. Based solely on financial considerations, should Mr. Jones sell the taxi and accept the position as dispatcher? Discuss the qualitative as well as quantitative factors that Mr. Jones should consider. a. b. c.Explanation / Answer
a.
Opportunity cost of owning and operating the independent business
= loss of amount recieved as dispatcher + loss of return on sale of independent business
= $27500 + $36500 * 10%
= $31150
b.
Should sell the taxi and accept the position as dispatcher
= Opportunity benfit for sell the taxi and accept the position as dispatcher - Opportunity cost for sell the taxi and accept the position as dispatcher
= $31150 - $30000
= $1150
Sell the taxi and accept the position as dispatcher since there is benfit of $1150
c.
Qualitaive factors
SWOT analysis
Operating as own or sell and as a dispatcher
Employee morale
Quantitaive factors
investment appraisal
break-even analysis
market research
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