Question

Lauren runs a chili restaurant in San Francisco. Her total revenue last year was $110,000. The rent on her restaurant was $48,000, her labor costs were $42,000, and her materials, food and other variable costs were $20,000. Lauren could have worked as a biologist and earned $50,000 per year. An economist calculates her implicit costs as

$150,000.
$50,000.
$63,000.
$110,000.

Answer 1

The answer is B. $50,000

Step-by-step explanation:

Implicit cost is the opportunity cost. It is the forgone cost. The cost of action that was not chosen

.

Explicit cost is the actual cost spent to produce a good or service or cost spent on the chosen action. Explicit cost is also known as accounting cost(Cost of direct expenses in producing a goods)

Economic cost is addition of accounting(explicit) cost and implicit cost(forgone or opportunity cost).

In the question, implicit cost is $50,000. The cost of Lauren if she had worked as a biologist. This is the forgone cost.