Joe runs a restaurant. He pays his employees 200,000 per...

Joe runs a restaurant. He pays his employees $200,000 per year. His ingredients cost him $50,000 per year. Prior to running his restaurant, Joe was a lawyer earning $150,000 per year. What would economists say is Joe's cost of running the restaurant? A) $150,000 B) $200,000 C) $250,000 D) $400,000

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Transcript

00:01 Hello, in this question, we need to understand the difference between explicit cost and implicit cost.

00:10 So, explicit cost are direct out of pocket expenditure of a firm.

00:38 Example the wages paid, rent paid, a purchase of raw materials, basically the payments made.

01:01 Now, the implicit cost is basically the opportunity cost of using already owned resources.

01:26 Example being the intellect of entrepreneur, then the owned property.

01:48 So, this is basically the concept of explicit and implicit cost.

01:51 So, let's see the questions that are given to us.

01:54 The first is salary that lorenzo can earn.

01:57 So, salary if he works as a programmer, this will be the opportunity cost.

02:04 So, this is implicit cost.

02:10 Then the next is the rental income that could have earned through renting out the showroom.

02:21 So, this will also be an implicit cost.

02:27 Next is the wholesale cost given or paid to the manufacturer.

02:38 This will be an explicit cost.

02:46 Next the wages that are paid, this will also be an explicit cost.

02:55 Now, let's solve for accounting profit and economic profits.

03:10 Accounting profit basically includes the total revenue minus only the explicit cost.

03:18 The total revenue is 833000...

Question

Joe runs a restaurant. He pays his employees $200,000 per year. His ingredients cost him $50,000 per year. Prior to running his restaurant, Joe was a lawyer earning $150,000 per year. What would economists say is Joe's cost of running the restaurant? A) $150,000 B) $200,000 C) $250,000 D) $400,000

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