Lucy is contemplating opening her own custom saddle factory. She estimates that she can make 10 saddles per year and sell them for $15,000 each. The raw materials to make 10 saddles would cost $70,000. Lucy has $100,000 saved but she would need to borrow an additional $100,000 at 10% interest to be able to open her factory (assume that Lucy could loan out her money at 10%, too). Lucy could, instead, work in an established competitor’s saddle factory and earn $50,000 per year.
What is Lucy’s annual opportunity cost if she decides not to open her own saddle factory and instead decides to go to work in the competitor’s established factory?