Could you please show me how they got the answers below? Fay runs a hot dog cart

Question

Could you please show me how they got the answers below?

Fay runs a hot dog cart at the sports stadium. Fay has no skills, no job experience, and no alternative employment. Entrepreneurs in the hot dog cart business earn $12,000 a year. Fay pays the rent of $2,000 a year, and her total revenue is $15,000 a year. She borrowed $1,000 at 10 percent a year to buy equipment At the end of one year, Fay was offered $600 for her business and all its equipment. Fay's explicit costs are $ 2,100. Fay's implicit costs are $ 12,400 Fay's economic profit in the first year is 500" dollars.

Explanation / Answer

Explicit Costs are direct payment made to others in the course of running a business, such as wage, rent and materials.

So. here Explicit Cost = rent Payment + Interest payment for $1000 at 10% = $2000 + 0.10*1000 = $2000 + $100 = $2100

Implicit Costs are are those where no actual payment is made.

Implicit Cost = Entrenuer's earning + Equipment Depriciation = 12,000 + (1000 - 600) = 12000 + 400 = 12,400

Where Equipment Depriciation = Price at which equipment bought - Price at which they got sold after 1 year

Economic Profit = Total Revenue - Explicit Cost - Implicit Cost = 15,000 - 2100 - 12,400 = 15,000 - 14,500 = $500

If you don't understand anything then comment, I'ill revert back on the same, :)

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.