Suppose the Best Investment You Could Make with $100,000 in Cash

question 302

Multiple Choice

Suppose the best investment you could make with $100,000 in cash is to purchase a government bond that pays 14 percent interest per year. If you decide to invest the money in your own business instead of buying the government bond, the opportunity cost of this financial capital is

• A) $1,400 per year.
• B) $100,000 per year.
• C) $14,000 per year.
• D) zero, because you already had the $100,000.

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Definitions:

Accounting Profit

The financial gain calculated by subtracting total explicit costs from total revenues, excluding the consideration of implicit costs or opportunity costs.

Economic Profit

The gap between a company's total earnings and its combined explicit and implicit expenses.

Total Output

The total quantity of goods or services produced by an economy, firm, or production process within a given period.

Total Revenue

The complete amount of money received by a company or organization from its business activities, such as sales of goods or services, before any expenses are subtracted.