An entrepreneur quits a job where she was earning $60,000 per year and starts her own business. In this Business she is earning $20,000. What is the cost of the business? Suppose the entrepreneur is so happy being on her own that she thinks it gives her the same joy that a $100,000 job would. What is the cost of the business.
OCbusiness=amountoforiginalincome−amountofnewincomeThe cost of the business is $40,000, due to the cost of losing the $60,000 of income from the previous job, plus the gain of $20,000 in her new business.OCbusiness=−60,000+20,000=−40,000
Since she estimates the value of the job being at $100,000, the new cost of the business would be +$40,000. I.e. she gains $40,000 in income