Question

3. Jasmine is working for a bank in New York City but (paying each a salary of $75,000). She would also is thinking of starting her own Cur- rently, her salary is $100,000. In addition, she is also calculated that she could make $400,000 a year in writing a blog that makes her another $10,000 a year. revenues. Set up a table in Excel, and calculate im- To start her own firm, she would have to quit both her plicit and explicit costs as well as business and eco- job and writing her blog. She would also need to rent nomic profits. Should she pursue opening her owrn an office for $250,000 a year and hire two employees consulting firm? consulting firm. Cur incur utilities and other costs totaling $5,000. She

Answer 1

Explicit cost = Office rent + Total salary + Utilities

Implicit cost = Salary given up + Income from blogging given up

Business profit = Revenue - Explicit cost

Economic profit = Business profit - Implicit cost

	$	$
Revenue		4,00,000
Explicit cost:
Office Rent	2,50,000
Employee Salary for 2	1,50,000
'(= 75,000 x 2)
Utilities & Other cost	5,000
Total Explicit cost		4,05,000
Implicit cost:
Salary given up	1,00,000
Blogging income given up	10,000
Total Implicit cost		1,10,000
Business Profit		-5,000
Economic Profit		-1,15,000

Since both Business Profit and Economic profit are negative, she should not open her own firm.