(Scenario: Betty's Cookie Shop)Use Scenario: Betty's Cookie Shop.Betty's implicit and explicit costs are equal to: Scenario: Betty's Cookie Shop
Betty runs a cookie shop where she sells cookies for $1 each.She employs five people,each of whom worked a total of 500 hours last year;she paid them $10 per hour.Her costs of equipment and raw materials add up to $75,000.Her business ability is legendary,and other companies have offered to pay Betty $100,000 to come to work for them.She also knows she could sell her cookie shop for $150,000.The bank in town pays an annual interest rate of 3% on all funds deposited with it.

Question

Quizplus · Accepted Answer

Betty's explicit costs include wages ($10 * 5 * 500 = $25,000) and equipment/materials ($75,000), totaling $100,000. Her implicit costs include the forgone salary ($100,000) and the forgone interest from selling the shop ($150,000 * 0.03 = $4,500), totaling $104,500. Combined, her total costs are $204,500.