Answer to Question #186348 in Economics of Enterprise for THILAKAVATHY SUPPIAH

Question

Question 1

Azree an accountant, working for a foreign consultant firm and earning RM 78,000 per year is contemplating giving up his job and set up his own tax consultant firm. He estimates that renting an office would cost RM 780 per month, hiring a secretary with salary RM 1,500 per month and purchasing for required supplies would cost him RM 10,000 per annum. He estimated that his total revenues for the year would be RM 120,000.

 

a)Define the explicit cost and implicit cost

Answer 1

Explicit Cost is out-of-pocket cost. It is the payments that the firm make. Eg: Wages to employees , Office Rent.

Implicit costs is the opportunity cost where there is forgone benefit that would have been derived by an option not chosen.

Explicit costs​ = Office rental + secretary's salary + purchasing for required supplies

Explicit cost $= 9,360 + 18,000 + 10,000$

Explicit cost= $RM 37,360$

 Implicit cost=consulting revenue=$RM78000$