Justin Brimer owns his own taxi, for which he bought a $34,000 permit to operate
ID: 2577705 • Letter: J
Question
Justin Brimer owns his own taxi, for which he bought a $34,000 permit to operate two years ago. Mr. Brimer earns $32,000 a year operating as an independent but has the opportunity to sell the taxi and permit for $93,000 and take a position as dispatcher for Carter Taxi Co. The dispatcher position pays $34,000 a year for a 39-hour week. Driving his own taxi, Mr. Brimer works approximately 53 hours per week If he sells his business, he will invest the $93,000 and can earn a 10 percent return Required a. Determine the opportunity cost of owning and operating the independent business b-1. Calculate the eamings of Justin Brimer operating as an independent g as an indeper b-2. Calculate the earnings of Justin Brimer working as a dispatcher as a dispatc b-3. Based solely on financial considerations, should Mr. Brimer sell the taxi and accept the position as dispatcher? O Yes No Type here to searchExplanation / Answer
a) Determine the opportunity cost of owing and operating the independent Business.
Aswer:
Opportunity cost refers to a benefit that a person could have received, but gave up, to take another course of action. Stated differently, an opportunity cost represents an alternative given up when a decision is made
The opportunity cost is the difference between the most lucrative option and the chosen option.
So Opportunity cost of owing and operating the independent Business.
= [$34,000 + ($93,000*10%)] - $32,000 = $43,300 -$32,000 = $11,300
b-1) Earning of Justin Brimer operating as an independent
= $32,000
b-2) Earning of Justin Brimer for working as dispatcher
= Salary + Interest
= $34,000 + ($93,000*10%)
= $43,300
b-3) Based solely on financial considerations, Should Mr Brimer sell the taxi and accept the position as dispatcher ?
Answer: Yes, As the total income as dispatcher is higher than operating as independent so Mr Brimer shouldsell the taxi and accept the position as dispatcher.
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