Question

Barney decides to quit his job as a corporate accountant, which pays $10,000 a month, and goes into business for himself as a certified public accountant. He runs his business from his converted garage apartment, which he could rent out for $300 a month if he wasn’t using it as a home office. He must purchase office supplies worth $75 a month, and his monthly electricity bill has increased by $50 now that he is working out of his home office. After six months of working from home, Barney has earned an average of $12,000 per month. Instructions: Enter your answers as a whole number. a. What are Barney’s monthly explicit costs? $ b. What are Barney’s monthly implicit costs? $ c. What are Barney’s monthly economic costs?

Answer 1

A- $ 50 Electricity

$ 75 Office suplies

$ 125 Total explicit costs

B- $ 300 Rent

$10000 Lost of salary for quitting his job

$ 10300 Total implicit cost

C- $ 125 Total explicit costs

$ 10300 Total implicit cost

$ 10425 Total economic cost

Step-by-step explanation:

A- Explicit costs are observable (such as salaries paid to employees, material costs, taxes, etc.) and are paid with cash.

B- Implicit costs are those incurred for giving up an alternative use of a specific resource, but no cash outlay is made. In this case, $ 300 that is no longer earned by using the garage as an office and $10000 lost each month for quitting his job.

C- The sum of the implicit and explicit costs determines the total economic cost

.