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27 December, 23:21

Rina is working for a marketing firm making $50,000 per year but considers starting her own marketing company. Rina 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. Rina 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%.

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  1. 27 December, 23:36
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    accounting cost:

    rent 75,000

    employee 190,000

    materials 6,000

    total 271,000

    economic cost

    accounting cost 271,000

    wages opportunity cost 50,000

    interest opportunity cost 4,000

    total 325,000

    Explanation:

    The accounting will only consider the explicit cost (those from which RIna is liable to)

    While the econmist analysis will also consider the opportunities Rina renounce by taking their course of action. That is the wages, rent or interest it could earn fro mthe factor input of the business.
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