After graduation, you face a choice. One option is to work for a multinational c

Question

After graduation, you face a choice. One option is to work for a multinational consulting firm and earn a starting salary (benefits included) of $40,000. The other option is to use $5,000 in saving to start your own consulting firm. You could earn an interest return of 5 percent on your savings. You choose to start your own consulting firm. At the end of the first year, you add up all of your expenses and revenues. Your total includes $12,000 in rent, $1,000 in office supplies, $20,000 for office staff, and $4,000 in telephone expenses. What are your total explicit cost and total implicit costs?

Explanation / Answer

Well, the explicit cost is costs that are accountable. This would include expenses like rent, supplies, wages, bills, etc. Thus, we see that the total explicit cost in this case is the $5000 you used to start the firm, plus $12000 in rent, $1000 in office supplies, $20000 in wages for the office staff, and $4000 in telephone expenses. This adds up to be $42000. The implicit cost is the opportunity cost. This is the foregone wage that you would have gotten had you not chosen to start your own business. In this case, this was the $40,000 you could have gotten from working at a consulting firm, which is the foregone cost (opportunity cost).

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.