Scenario 13-8
Ellie has been working for an engineering firm and earning an annual salary of $80,000. She decides to open her own engineering business. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. Ellie will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $500.
-Refer to Scenario 13-8.Ellie's annual economic costs will equal
A) $55,200.
B) $75,200.
C) $80,500.
D) $135,700.

Question

Quizplus · Accepted Answer

Ellie's economic costs include explicit costs (office rent, equipment rental, supplies, utilities, and salary for the secretary/bookkeeper) and implicit costs (forgone salary and interest). Adding these: $15,000 + $3,000 + $1,000 + $1,200 + $35,000 + $80,000 (forgone salary) + $500 (forgone interest) = $135,700.

Scenario 13-8 Ellie Has Been Working for an Engineering Firm and Earning