Suppose a firm has an annual budget of $200,000 in wages and salaries,$75,000 in materials,$30,000 in new equipment,$20,000 in rented property,and $35,000 in interest costs on capital.The owner/manager does not choose to pay himself,but he could receive income of $90,000 by working elsewhere.The firm earns revenues of $360,000 per year.What are the annual economic costs for the firm described above?
A)$450,000.
B)$120,000.
C)$90,000.
D)$360,000.

Question

Quizplus · Accepted Answer

Economic costs include all explicit and implicit costs. The explicit costs in this scenario are the annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital, totaling $360,000. The implicit cost is the opportunity cost of the owner/manager choosing to work elsewhere and earning $90,000. Therefore, the total economic costs are $450,000.

Suppose a Firm Has an Annual Budget of $200,000 in Wages