. Last year, you spent $10,000 researching the market to decide whether to begin
ID: 1166435 • Letter: #
Question
. Last year, you spent $10,000 researching the market to decide whether to begin a new business. You rent a space for $40,000 a year, and pay an employee $50,000 a year with a 1 year contract. If you could earn $100,000 in another occupation, and you sell 5000 units which cost $2 to produce, which of the following correctly characterizes your costs? a) Your total economic costs (explicit and implicit) are $210,000 b) Your total economic costs (explicit and implicit) are $200,000 c) Your explicit variable costs are $200,000 d) Your explicit fixed costs are $100,000
Explanation / Answer
ANSWER:
Total economic costs ( explicit and implicit) = money spent on researching + rent costs + employee hiring costs + money that could have been earned from another occupation + producing costs
producing costs = no of units sold * cost per unit = $5,000 * $2 = $10,000
Total economic costs ( explicit and implicit) = $10,000 + $40,000 + $50,000 + $100,000 + $10,000 = $210,000
so option a is the right answer.
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