The house that Jeanne inherited from her mother can rent for $1500/month, but Jeanne decides to allow her brother to stay there for only $500 per month. This decision carried with it a

a) $500 per month monetary cost but a $1500 per month opportunity cost. b) zero monetary cost but a $1000 per month opportunity cost. c) $1000 per month monetary and opportunity cost.

Question

Business

Alfredo

29 June, 06:56

The house that Jeanne inherited from her mother can rent for $1500/month, but Jeanne decides to allow her brother to stay there for only $500 per month. This decision carried with it a

a) $500 per month monetary cost but a $1500 per month opportunity cost. b) zero monetary cost but a $1000 per month opportunity cost. c) $1000 per month monetary and opportunity cost.

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Answers (1)

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Alvaro Huffman · Answer 1

The correct option is B, zero monetary cost but a $1,000 per month opportunity cost

Explanation:

Monetary cost also known as explicit cost is the actual costs incurred in running a business. But the business in this case is renting of the property, frankly speaking, Jeane has not incurred any cost in her property business, hence monetary cost is zero.

Opportunity is the cost or benefits from alternative course of action. Jeane not renting out the property on commercial basis is the alternative course of action in this case. Since the commercial letting gives $1500 and the letting to her brother gives $500, the difference between the two rents is $1000 which is benefits forgone from letting the house to her brother, that is the opportunity cost.