Andrew decides to open a tattoo parlour in his basement and quits his job at TD Securities, sacrificing an annual salary of $64,000. Andrew will have to evict his tenant who currently pays $16,000 a year to rent the basement. Andrew's implicit cost of opening the tattoo parlour is $64,000.

Question

Quizplus · Accepted Answer

Andrew's explicit cost of opening the tattoo parlour is $16,000 (as he will lose the rental income from evicting his tenant), but his implicit cost is only the $64,000 salary he is sacrificing by quitting his job. Therefore, his total cost is $80,000 ($16,000 explicit cost + $64,000 implicit cost).

Andrew Decides to Open a Tattoo Parlour in His Basement