Scenario 12-8
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 12-8.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 annual economic costs include both explicit and implicit costs. Explicit costs are $15,000 (rent) + $3,000 (equipment) + $1,000 (supplies) + $1,200 (utilities) + $35,000 (salary) = $55,200. Implicit costs include the forgone salary of $80,000 and the forgone interest of $500, totaling $80,500. Therefore, the total economic cost is $55,200 + $80,500 = $135,700.

Scenario 12-8 Ellie Has Been Working for an Engineering Firm and Earning