Answer:
Explicit cost
The wages and utility bills that Felix pays
The wholesale cost for the guitars that Felix pays the manufacturer
Implicit cost
The rental income Felix could receive if he chose to rent out his showroom
The salary Felix could earn if he worked as a paralegal
Accounting profit = $45,000
Economic profit = $11,000
Explanation:
Implicit cost also known as opportunity cost is the cost of the next best option forgone when one option is chosen over another option.
When Felix decides to open a guitar shop, he would be forgoing the opportunity of working as a paralegal.
Also, he would be forgoing the opportunity of earning rental income from his showroom.
Explicit cost is the actual cost incurred
Accounting profit = Revenue - Total Explicit Costs
Total Explicit Costs = $435,000 + $255,000 = $690,000
$735,000 - $690,000 = $45,000
Economic profit = Accounting profit - Implicit cost
Total implicit costs = $24,000 + $10,000 = $34,000
$45,000 - $34,000 = $11,000
