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1)If you have SAR 50,000 to start a new business, you can earn 10 percent interest on money in a bank account. Your business expenses are SAR 22,000 per year on rent, SAR 18,000 per year on supplies, and SAR 5,000 per year on part time help. As for your personal expenses, your apartment costs you SAR 12,000 per year and your personal bills are an extra SAR 6,000 per year. What is your opportunity cost of running the business? (4 marks)
The opportunity cost of running the business is SAR 13,000 per year.
The total expenses (SAR 47,000) and subtracting the personal expenses (SAR 18,000) to get SAR 29,000. Then, subtract the amount earned in interest (SAR 5,000) from the total expenses to get the opportunity cost of SAR 24,000.
Finally, subtract the amount earned in interest (SAR 5,000) from the total expenses to get the opportunity cost of SAR 13,000.