Answer to Question #144104 in Economics of Enterprise for berkha

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 done per month in a business and include rent and salary for the staff. On the other hand, implicit costs are the subtle opportunity costs of resources owned by a firm, for example the salary Sarah used to get before quitting her job.

explicit costs $= rent +wages = 70, 000 + 30, 000 = Rs 100, 000$

implicit costs $=$ $Rs 120, 000$ (as if she will be working as head of makeup artist instead of opening saloon , then she will earn Rs 1,20,000 per month).