Exercise $6-5$A $($Algo$)$ Opportunity costs LO $6-1$

Norman Dowd owns his own taxi, for which he bought a $$11,200$ permit to operate two years ago. Mr$.$ Dowd earns

$$33,600$ a year operating as an independent but has the opportunity to sell the taxi and permit for $$42,500$ and take a

position as dispatcher for Carter Taxi Company The dispatcher position pays $$33,500$ 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

$$42,500$ 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?