Oprah just inherited a house with a market value of 100000 a

Oprah just inherited a house with a market value of $100,000, and she does not expect the market value to change. Each year, she will pay $750 for utilities and $4000 in taxes. She can earn 6 percent interest on money in a bank account. Her cost of living in the house for the year is ? (Enter your response rounded to the nearest dollar)

Solution

If Oprah sold the house off and deposited the money in bank, she will get 6% of $100,000 = $6,000.

hence $6000 is the opportunity cost.

Oprah pays $750 for utilities and $4000 in taxes makes total of $4750.

Hence the total cost of living of Oprah in living in the house = opportunity cost of money + cost of living

= $6000 + $4750 = $10750