Question

Norman Dowd owns his own taxi, for which he bought a $12,000 permit to operate two years ago. Mr. Dowd earns $36,000 a year operating as an independent but has the opportunity to sell the taxi and permit for $46,500 and take a position as dispatcher for Carter Taxi Co. The dispatcher position pays $37,500 a year for a 40-hour week. Driving his own taxi, Mr. Dowd works approximately 55 hours per week. If he sells his business, he will invest the $46,500 and can earn a 12 percent return. Required a. Determine the opportunity cost of owning and operating the independent business. b. Calculate the earnings of Norman Dowd operating as an independent and the earnings of Norman Dowd working as a dispatcher Based solely on financial considerations, should Mr. Dowd sell the taxi and accept the position as dispatcher? Opportunity cost b. Operating as an independent Working as a dispatcher Should Mr Dowd sell the tax and accept the position as dispatcher rences

Answer 1

O solution opportunity cost = 46500 Operating as an Independent = 36000 working as despatcher = 43080 [ 37500 + (12% of 46500)] Yes, Mr Dowd Sell the Taxi and accept as despatcher. the position