Question

jason owns a small pizza restaurant, where he works full time in the kitchen. his total revenue last year was $105,250, and his rent was $2,620 per month. he pays his one employee $1,920 per month, and the cost of ingredients and overhead averages $865 per month. jason could earn $38,200 per year as manager of a competing pizza restaurant nearby. what's jason's implicit cost for the entire year?

Answer 1

Jason's implicit cost for the entire year is $67,050, which represents the forgone salary and benefits of being a manager at a competing pizza restaurant.

Step-by-step explanation:

Jason's implicit cost for the entire year would be the opportunity cost of working full-time in his own pizza restaurant compared to being the manager of a competing pizza restaurant nearby. The implicit cost is the forgone salary and benefits that Jason could have earned as a manager.

Calculating explicit costs for the year:

- Rent: $2,620 per month x 12 months = $31,440

- Employee salary: $1,920 per month x 12 months = $23,040

- Cost of ingredients and overhead: $865 per month x 12 months = $10,380

Total explicit costs for the year: $31,440 + $23,040 + $10,380 = $64,860

Next, let's calculate Jason's opportunity cost as the potential earnings he could have had as a manager at the competing pizza restaurant:

Opportunity cost: $38,200 per year

Implicit cost = Total revenue - Opportunity cost

Implicit cost = $105,250 - $38,200 = $67,050