Question

Fred quits his job with a big accounting firm, where he was earning $95,000 per year, to start his own accounting business in a building he owns. He previously rented the building to someone who paid him rent of $22,000 per year, but now Fred collects no rent because he is using the building himself. Fred pays himself a salary of $32,000 per year and has other expenses of $25,000 per year. The yearly economic cost for Fred's accounting business is Enter your response as an integer)

Answer 1

economic cost for Fred's accounting business is $142,000

Step-by-step explanation:

given data

earning = $95,000 per year

rent = $22,000 per year

salary = $32,000 per year

other expenses = $25,000 per year

to find out

economic cost for Fred's accounting business

solution

we know that economic costs include both the explicit costs and implicit costs and here explicit costs is the expenditure on factor of production purchase from outside

so implicit costs is opportunity cost of owner provided resource and other expense is an explicit cost

so here Economic cost is here

Economic cost = Foregone salary + Foregone rent + Other expenses ..............1

put here value

Economic cost = 95,000 + 22,000 + 25,000

Economic cost = = $142000

so

economic cost for Fred's accounting business is $142,000