Question

Ginger runs an upscale wine shop. Last year, she earned $50,000 in revenue and had explicit costs of $20,000. Ginger could have made $30,000 selling video games on the Internet and received an additional $2,000 if she rented out the store and equipment. Calculate Ginger's implicit costs.

Answer 1

Ginger's implicit costs are $32,000, including potential earnings from video game sales ($30,000) and store/equipment rental ($2,000).

Step-by-step explanation:

Implicit costs refer to the opportunity costs of resources the owner already owns, and thus, doesn't involve direct monetary transactions. In this scenario, Ginger's implicit costs include the potential revenue she could have earned by selling video games ($30,000) and the additional income from renting out the store and equipment ($2,000). Therefore, the total implicit costs are $30,000 + $2,000 = $32,000.

Ginger's explicit costs, the direct monetary expenses, are $20,000. Implicit costs are not recorded in accounting statements but are crucial in assessing the true economic cost of a decision. By choosing to run an upscale wine shop and foregoing the alternative opportunities in video game sales and renting the store, Ginger incurs implicit costs. These costs are fundamental in evaluating the overall profitability and efficiency of her chosen business model.

In summary, while Ginger's explicit costs are $20,000, her implicit costs amount to $32,000, reflecting the forgone opportunities in the video game market and rental income. The consideration of both explicit and implicit costs provides a comprehensive understanding of her economic decision-making and helps in making informed business choices.