Question

2. Calculating costs Yvette is working for an advertising firm making $50,000 per year but considers starting her own advertising company. Yvette has determined that to launch the business, she needs to invest $80,000 of her own funds. The annual cost of running the business will include $75,000 for the rent of the office space, $190,000 for employee wages, and $6,000 for materials and utilities. Yvette plans to manage the business, which means that she will have to quit her current job. Suppose that the interest rate (or rate of return) on investments in the economy is 5%. Yvette's total explicit cost per year is Yvette's total cost per year is_ al cost per year is

Answer 1

total explicit cost= 75000+ 190000+ 6000 = 271000 ( it is the cost that the firm or organization has to pay to hire factor services from outside of organization )

total cost = total explicit cost + total implicit cost

= 271000+ 50000+ 80000

= 401000

1. implicit cost : it is an opportunity cost that he would incur if he would have been received by giving showroom on rent
2. explicit cost : direct pay to outside of the organization.
3. implicit cost : opportunity cost if he works as accountant
4. explicit cost : direct pay to wholeseller to purchase guitar