Question
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2) Lauren runs a chili restaurant in San Francisco. Her total revenue
last year was . The rent on her restaurant was , her
labor costs were , and her materials, food and other variable
costs were . Lauren could have worked as a biologist and
earned per year. An economist calculates her implicit costs
as
OA) .
OB) .
OC) .
OD) .
OE) because Lauren did not work as a biologist.

Ask by Long Best. in the United States
Mar 15,2025

Upstudy AI Solution

Tutor-Verified Answer

Answer

The implicit cost is $50,000, which is option C.

Solution

  1. Identify Lauren’s explicit costs:
    • Rent:
    • Labor costs:
    • Materials and other variable costs:
  2. The total explicit cost is:
  3. The implicit cost is defined as the opportunity cost of Lauren’s resources. Here, the relevant implicit cost is the salary she forgoes by not working as a biologist, which is:
  4. Therefore, the implicit cost calculated is:
  5. This corresponds to option OC.

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Extra Insights

Did you know that implicit costs are often less tangible than explicit costs but can significantly impact economic decision-making? In Lauren’s case, her implicit costs comprise the foregone income she could have earned as a biologist, which is . This is key in evaluating her true profits from the restaurant, as it reflects the opportunity cost of her choice!
Now, for a common pitfall when analyzing business finances: many forget to include implicit costs in their calculations. In this scenario, although Lauren’s explicit costs sum up to , we must factor in her potential earnings to fully grasp her financial standing. Remember, effective decision-making hinges on understanding the complete picture of costs and revenues!

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