Answer to Question #283270 in Microeconomics for DAMITH

Question

Mr. Hamid Mohammad is planning to pursue MBA studies. Initial inquiry shows that he will have to pay RM 25,000 as tuition fee, buy books for RM 1000, pay for transport RM 500. The MBA study programme will extend over 15 months. Mr Hamid is working now with a salary of RM 2,500 per month.. Being a full time student, he will have to forego the income from his present job for the period of study. Work out the (a) Financial cost, and (b) the Economic Cost of doing MBA (Hint: Identify implicit costs and explicit costs) 

Answer 1

Solution:

a.). Financial cost of doing MBA:

Financial cost = Total costs – implicit costs or explicit costs only

Explicit costs = 25,000 + 1,000 + 500 = RM26,500

Financial cost = RM26,500

 

b.). The Economic Cost of doing MBA:

Economic Cost = Implicit costs

Implicit Costs = Costs foregone from his present job = 2,500 x 15 = RM37,500

The Economic Cost of doing MBA = RM37,500