A few years ago, a construction manager earning $70,000 per year working for a regional home builder decided to open his own homebuilding company. He took $100,000 out of one of his investment accounts that had been earning around 6% a year and used that money to start up the business. He worked hard the first year, hiring one employee (his only salary cost for the business was the $40,000paid to this employee) and generated total sales of $1,000,000.Total material and subcontracted labor costs for the year were$900,000.
5.2. What are the opportunity costs for the manager of being in this business relative to returning to his old job?
A few years ago, a construction manager earning $70,000 per year working for a regional home builder decided to open his own homebuilding company. He took $100,000 out of one of his investment accounts that had been earning around 6% a year and used that money to start up the business. He worked hard the first year, hiring one employee (his only salary cost for the business was the $40,000paid to this employee) and generated total sales of $1,000,000.Total material and subcontracted labor costs for the year were$900,000.
5.2. What are the opportunity costs for the manager of being in this business relative to returning to his old job?
Related textbook solutions
Related questions
Although GDP is a reasonably good measure of a nation's output, it does not necessarily include all transactions and production for that nation. Which of the following activities is either not accounted for or are measured inaccurately in calculations of GDP for the United States? Check all that apply.
-Funds spent by city governments to renovate their buildings
-The costs of air and water pollution
-The Brazilian wood that is used for flooring in a new U.S. house
-The leisure time enjoyed by Americans
-The value produced by doing your own laundry
2.
Consider a small economy composed of six people: Clancy, Eileen, Hubert, Kate, Poornima, and Manuel. Each person's employment status is described in the following table.
Based on the criteria used by the Bureau of Labor Statistics (BLS), identify each person's status as employed, unemployed, not in the labor force, if not in the civilian labor force but still part of the adult population, or not in the adult population if not in the civilian adult population.
| Person | Status |
|---|---|
| -Clancy is a 20-year-old professional tennis player. When he's not competing, he works as a coach at a local tennis club. | |
|
-Eileen is a 36-year-old autoworker who was just laid off by her employer. She is trying to find any kind of job to help make ends meet. |
|
|
-Hubert is a 79-year-old retired professor. He enjoys volunteering at the local public library. |
|
|
-Poornima is a 29-year-old who lost her job as an associate producer for a radio station. After spending a few weeks out of work and interviewing for several other positions, she gave up on her job search and decided to go back to grad school. She made that decision a few months ago. |
|
|
-Manuel is a famous novelist. He is spending the summer at his lake house in upstate New York, doing a little writing each day but mostly spending his time gardening and reading. |
|
|
-Kate is an 11-year-old student at East Valley Middle School. She baby-sits her younger brother and does other chores for which her parents give her an allowance of $30 per week. |
3.
Initially, Ana earns a salary of $300 per year and Yakov earns a salary of $200 per year. Ana lends Yakov $100 for one year at an annual interest rate of 16% with the expectation that the rate of inflation will be 12% during the one-year life of the loan. At the end of the year, Yakov makes good on the loan by paying Ana $116. Consider how the loan repayment affects Ana and Yakov under the following scenarios.
Scenario 1: Suppose all prices and salaries rise by 12% (as expected) over the course of the year. In the following table, find Ana's and Yakov's new salaries after the 12% increase, and then calculate the $116 payment as a percentage of their new salaries. (Hint: Remember that Ana's salary is her income from work and that it does not include the loan payment from Yakov.)
- Value of Ana's new salary after one year?
-The $116 payment as a percentage of Ana's new salary?
-Value of Yakov's new salary after one year
-The $116 payment as a percentage of Yakov's new salary
Scenario 2: Consider an unanticipated decrease in the rate of inflation. The rise in prices and salaries turns out to be 2% over the course of the year rather than 12%. In the following table, find Ana's and Yakov's new salaries after the 2% increase, and then calculate the $116 payment as a percentage of their new salaries.
-Value of Ana's new salary after one year
-The $116 payment as a percentage of Ana's new salary
-Value of Yakov's new salary after one year
-The $116 payment as a percentage of Yakov's new salary
