Question
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.
2) Lauren runs a chili restaurant in San Francisco. Her total revenue |
last year was
|
labor costs were
|
costs were
|
earned
|
as |
OA)
|
OB)
|
OC)
|
OD)
|
OE)
|
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
-
Identify Lauren’s explicit costs:
- Rent:
- Labor costs:
- Materials and other variable costs:
- Rent:
-
The total explicit cost is:
-
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:
-
Therefore, the implicit cost calculated is:
-
This corresponds to option OC.
Answered by UpStudy AI and reviewed by a Professional Tutor
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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!