Answer to Question #147070 in Microeconomics for Mustafa

Question

Inayah needs Rs.100, 000 to start an ice-cream business. If she uses Rs.40, 000 from her savings and another Rs.60, 000 borrows from the bank. The interest rate is 5% in the market. Find the opportunity cost that Inayah has to bear in order to start a business?

Answer 1

Opportunity cost is

5% of Rs100000

= Rs5000

Opportunity value refers to the best alternative chosen when a decision is made. Opportunity cost can be Explicit or Implicit depending on it's effect to the person who has invested in it. Inayah will face an explicit type of opportunity cost since she pays 5% to the market for compensation. The payment passes the load of opportunity value from Inayah to the market.