A new entrepreneur invests $10,000 of personal savings into a business and the business fails. What term describes the financial risk the entrepreneur has taken?

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Question

A new entrepreneur invests $10,000 of personal savings into a business and the business fails. What term describes the financial risk the entrepreneur has taken?

Accepted Answer

The risk of losing personal capital invested in the business — Taking financial risk means the entrepreneur may lose the personal capital they have invested if the business fails. Opportunity cost refers to the next best alternative forgone, not the loss of invested capital. Fixed costs relate to production costs, not entrepreneurial risk. Profit forgone by not selling relates to a different business decision entirely.

Answer

Opportunity cost of the investment made in the failed venture

Answer

The risk of losing personal capital invested in the business

Answer

The profit forgone by not selling the business to a competitor

Answer

The fixed cost incurred by employing workers in the business

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