A explicit costs 12000 rentutilities 2000 advertising 10000...

a. Explicit costs = $12,000 (Rent/Utilities) + $2,000 (Advertising) + $10,000 (Other operating costs) = $24,000 b. Implicit costs = $45,000 (opportunity cost of working for a steady wage) + $200 (interest that could have been earned) = $45,200 c. Accounting Profit = Revenue - Explicit costs = $100,000 - $24,000 = $76,000 d. Economic Profit = Accounting Profit - Implicit costs = $76,000 - $45,200 = $30,800

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00:01 So here we're doing some basic economic accounting, right? and the fundamental idea is that one's economic profit is equal to your accounting profit, right, which is sort of revenues minus costs, subtract also the implicit opportunity costs that are not given.

00:23 So here we are given a whole $175 ,000.

00:31 I'm going to put everything in thousands.

00:33 So we have inputs are $80 ,000.

00:39 We have $500 ,000 of money being spent, but that money is not a cost, right? like that money is not lost.

00:49 It's simply invested in the building.

00:52 The key thing is the opportunity cost.

00:54 The cost is based on this 14 % interest, right? so the inputs here are the explicit costs.

01:05 And those are indeed $80 ,000.

01:07 I totally agree for a.

01:09 But the implicit costs are the foregone interest.

01:14 When you tie your money up in the business, you cannot earn interest on it.

01:20 So what we are doing is giving up 14 % of $500 ,000.

01:25 And that is $70 ,000, right? so that would be my answer for b, right? this is an implicit cost.

01:32 We're not paying the $70 ,000 out of pocket, but we are still, we are foregoing that money by choosing to operate the business.

01:44 So the next part is that the economic costs, the accounting costs, plus the opportunity costs are $150 ,000.

01:55 I totally agree with that...

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