Question

الالالالالالالالا Doug owns and runs an artisan bakery. Below are some of the details about his business's expenditures. For each item indicate the type of cost incurred: • He has 2 assistants and he pays each of them $2,500/month. • To run the business he quit another job which paid him $5,200/month. To save on business expenses he does not earn any salary at his bakery. • He spends $3,000/month on ingredients and other supplies. • He owns the truck used for delivery of his product. He could have leased the truck to somebody else at $400 a month. • He constantly needs to have $12,000 in his business account to pay for such expenses. He borrowed $12,000 from the bank for this purpose. He has to pay 1% monthly interest rate to the bank. Using the above information answer the following questions: His explicit monthly cost is $ . His implicit monthly cost is $ His total monthly economic cost is $ Check -0 W

Answer 1

1. Explicit cost = 2(2500)= $ 5000

2. Implicit cost of time = $5200

3. Explicit cost = $3000

4. Implicit cost of capital =$ 400

5. Explicit cost = $ 120

Total explicit cost = $5000+ $3000+ $120

Total implicit cost = $ 5200 + $400

Economic cost = $ 13720