Question

Ramona owns a small coffee shop, where she works full-time. Her total revenue last year was $100,000, and her rent was $3,000 per month. She pays her one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ramona could earn $35,000 per year as the manager of a competing coffee shop nearby. Her total implicit costs last year were
a. $60,000.
b. $35,000.
c. $72,000.

Answer 1

Answer:

Implicit Costs = $35,000

correct option is b. $35,000

Explanation:

given data

total revenue = $100,000

rent = $3,000

overhead averages = $500 per month

Ramona earn = $35,000 per year

to find out

total implicit costs

solution

we know that here Total Rent paid is

Total Rent paid = 3000 × 12

Total Rent paid = $36000

and

Total employee payment = 2000 ×  12

Total employee payment  = $24000

and

Total ingredient and overhead = 500×  12

Total ingredient and overhead = $6000

and

Explicit Costs = 36000 + 24000 + 6000 = $66000

so here

Implicit Costs = The opportunity cost of not working as a manager

Implicit Costs = $35,000

correct option is b. $35,000