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11 September, 11:08

Ramona owns a small coffee shop, where she works full-time. Her total revenue last year was $100,000, and her rent was $3,000 per month. She pays her one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ramona could earn $35,000 per year as the manager of a competing coffee shop nearby. Her total implicit costs last year were

a. $60,000.

b. $35,000.

c. $72,000.

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Answers (1)
  1. 11 September, 11:23
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    Implicit Costs = $35,000

    correct option is b. $35,000

    Explanation:

    given data

    total revenue = $100,000

    rent = $3,000

    overhead averages = $500 per month

    Ramona earn = $35,000 per year

    to find out

    total implicit costs

    solution

    we know that here Total Rent paid is

    Total Rent paid = 3000 * 12

    Total Rent paid = $36000

    and

    Total employee payment = 2000 * 12

    Total employee payment = $24000

    and

    Total ingredient and overhead = 500 * 12

    Total ingredient and overhead = $6000

    and

    Explicit Costs = 36000 + 24000 + 6000 = $66000

    so here

    Implicit Costs = The opportunity cost of not working as a manager

    Implicit Costs = $35,000

    correct option is b. $35,000
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