Answer to Question #143440 in Economics for Aza

Question

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 cost is: 70,000 + 30,000 = 100,000.

Implicit cost is 120,000.

So, if we count both explicit and implicit costs, then the total economic profit will be negative.