Jake opens a pig farm in Idaho. To start his farm, he uses his entire $50,000 of savings from his savings account. The bank was paying him $2,500 interest on his saving. Explain why the $2,500 is one of Jake's costs
What will be an ideal response?
When Jake provides the $50,000 to finance his farm's operations, he forgoes the $2,500 in interest. Thus the opportunity cost of the $50,000 is the interest income forgone and so the $2,500 is an opportunity cost of running the farm.
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