Answer to Question #143845 in Economics of Enterprise for faheem

Question

b. 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 are costs of payments in a business. e.g rent and staff salary.

while implicit costs are the subtle opportunity costs of resources already owned by a firm. e.g the salary Sahar was earning before quitting her job i.e. the Rs. 120,000

$explicit \ costs \ = \ (70,000 \ + \ 30,000) = 100, 000$

$explicit \ costs\ will \ be \ Rs. 100,000 \ while \ implicit \ cost \ will\ be\ Rs. 120,000$