Final answer:
The total economic costs for Creamy Crisp Donut Company are calculated by adding both explicit and implicit costs. The explicit costs include lease, worker payments, and utilities, while the implicit costs encompass the entrepreneur's potential earnings, value of talent elsewhere, and forgone interest. The sum of these costs is $286,000.
Step-by-step explanation:
To calculate the total economic costs for the Creamy Crisp Donut Company, we need to consider both explicit and implicit costs. Explicit costs are direct payments made to others in the course of running a business, such as lease payments, salaries, and utilities. Implicit costs represent the opportunity costs of a firm's resources that could be used in another way. For an entrepreneur, this includes the potential earnings from being a salaried worker, the value of the entrepreneur's talent in the next best entrepreneurial activity, and the forgone interest on personal funds used to finance the business.
In this case, the explicit costs are:
- Annual lease on building: $22,000
- Payments to workers: $120,000
- Utilities costs: $8,000
And the implicit costs are:
- Entrepreneur's potential earnings as a salaried worker: $50,000
- Value of entrepreneur's talent in the next best entrepreneurial activity: $80,000
- Entrepreneur's forgone interest on personal funds: $6,000
Adding these together, the total economic costs are:
$22,000 + $120,000 + $8,000 + $50,000 + $80,000 + $6,000 = $286,000.