14 of 50 13 cu This Question: 1 pt Ater graduation, you face a choice. One optio

Question

14 of 50 13 cu This Question: 1 pt Ater graduation, you face a choice. One option is to work for a mutinational consulting fim and eam a starting salary (benefts indluded) of $40,000. The other option is to use $5,000 in savings to start your own consulting fim. You could ean an interest retum of 5 percent on your savings. You choose to start your own consulting firm. At the end of the first year, you add up all of your expenses and nevarues. Your total Includes $14,00 in rent, $1,000 in office supplies, $18,000 for office staf and $5,000 in telephone expenses. Bopkd osts ndldl al cottri0 costs frgoe wages ($40,00, andforogore interest paymerts($6,00x5%).S0 and lelephone($5,000-implit costs indude opportunity Sopose, that yo·have now operated your orsuting firm, frayer Alte ondofte frst yoar, your total revenues are 83,500

Explanation / Answer

Explicit cost = 14000 + 1000 + 18000 + 5000 = $ 38000

Implicit cost = 40,000 + 250 = $ 40,250

Accounting profit = Total revenue - Total explicit cost = 83,500 - 38,000 = $ 45,500

Economic profit = Total revenue - Explicit cost - Implicit cost = 83500 - 38000 - 40250 = 83500 - 78250 = $ 5250

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