Question

Jessica simpson has decided to open a small fast food place that specializes in buffalo wings. to do so she must resign from her current full time position which pays her $40,000/year and take over a small store-front building which she already owns but currently rents to her brother, homer, for $6,000/year. her annual expenses at the restaurant will be $50,000 for the food and $2,000 for gas and electricity. what are her implicit costs? $40,000 46,000 $50,000 $52,000 $98,000

Answer 1

Answer: Jessica's implicit costs are $46,000.

Implicit costs are the benefits that an individual gives up when they take a decision. Implicit costs are also known as opportunity costs.

In this case, Jessica will lose her salary of $40,000 each year. She will also lose the rent of $6000 a year from the building if she opens her fast food joint. So, total implicit costs are:

$Total implicit cost = 40000+6000 = 46000$