Question
Norman Dowd owns his own taxi, for which he bought a $11,500 permit to operate two years ago. Mr. Dowd earns $34,500 a year operating
Norman Dowd owns his own taxi, for which he bought a $11,500 permit to operate two years ago. Mr. Dowd earns $34,500 a year operating as an independent but has the opportunity to sell the taxi and permit for $44,000 and take a position as dispatcher for Carter Taxi Co. The dispatcher position pays $35,000 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 $44,000 and can earn a 11 percent return.
Required
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Determine the opportunity cost of owning and operating the independent business.
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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?
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