A lawyer quits his job at a top legal firm where he was making $100,000 per year. He was just informed that his late aunt has bequeathed to him $1 million in cash. He decides to use all of the money to open and run his own hardware store
Assume at the end of the first year of business that his accountant has informed him that he earned a $90,000 accounting profit. Why would an economist not be quite as impressed? Explain.
An economist would not be impressed because he has not taken into account all his opportunity cost. The first one of course is the $100,000 that he could have been earning had not quit the law firm. That puts him $10,000 in the red right out of the starting gate. The second one of course is the forgone interest that could have been earned from the $1 million that could have been invested elsewhere. In short the economist would conclude that he has made a loss.
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Josh went to watch a movie, but decided to leave halfway and went for a walk to the nearby park. Which of the following is most likely to be true in this case? a. The price of the movie ticket represents a sunk cost
b. The opportunity cost of going for the walk is higher than the opportunity cost of watching the movie. c. Josh's marginal utility from walking increases as he walks more. d. Josh's marginal utility from watching another movie is the same as his marginal utility from walking another mile.
“It is in the nature of all economic problems that absolute solutions are denied us.”
Please provide the best answer for the statement.