Scenario 8.1: Juan used to work for a law firm where he earned a yearly salary of $50,000. He got tired of working for another firm so he opened his own law office. He now pays his secretary $20,000 per year and spends $25,000 for rent and utilities. He earns $100,000 in annual revenue. Refer to Scenario 8.1 above. Juan's opportunity cost (economic costs) of running his own business is

Juan's opportunity cost (economic costs) of running his own business is $0 . This is because Juans main costs for running his business are paying his secretary $20,000 per year and spending $25,000 for rent and utilities. Adding this up totals $45,000 but Juan makes a total of $100,000 a year with his business. This means that

$100,000 - $45,000 = $55,000

He is making a total of $55,000 a year with his business. Since he was only making $50,000 a year in his previous law firm this means that he is making $5000 more than his previous law firm with his own business. Therefore, making the opportunity cost $0 since the opportunity that he chooses is more valuable than the opportunity that he left behind.