Answer to Question #143602 in Economics of Enterprise for Ahmed

Question

Sahar is analyzing the probability to open her own beauty salon. If she chooses to operate her own salon she would have to pay Rs. 70,000 p.m as rent and staff that would cost her Rs. 30,000 p.m and is expected to earn Rs. 150,000 p.m. While if she continues working as the head makeup artist in one of renowned salons of Karachi she would earn 120,000. Analyze the information above and find explicit and implicit cost.

Answer 1

Explicit costs. These are direct payment made to others in the course of running a business, which include wage, rent and materials, among others.

Therefore;

Explicit costs = Rent + Wages

= Rs ( 70,000 + 30, 000 )

= Rs 100, 000

Implicit costs. These are any cost that has already occurred but not necessarily shown or reported as a separate expense.

Therefore;

Implicit costs = Rs 120, 000 - Rs ( 150, 000 - 100, 000)

= Rs ( 120, 000 - 50, 000)

= Rs 70, 000