Answer to Question #144111 in Finance 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

The explicit cost will be salary to employees and rent each costing Rs 30,000 and Rs 70,000 respectively per month. The total explicit will be obtained by adding the two cost that is 70,000+300 to get Rs. 1,000,000. Therefore, the total explicit cost will be Rs 1,00,000 per month. The implicit cost will be Rs120,000 as she continues to work as the head of makeup artist.