Question

Danya plans to open an English course. Currently he earns Rp. 350 million per year teaching a language education institution and will have to give up this job if he opens a new English language course. If he chooses to open an English course, it will cost him rent and other operational costs of Rp. 2 billion per year.

a. How much accounting costs?
b. How much opportunity costs?

Answer 1

a. Accounting costs = Rp. 2 billion.

​​​​​​Accounting costs are the explicit costs or the cost that has to be paid by the individual. To set up the course, Danya has to pay Rp. 2 billion in rent and other costs. So, the accounting costs are Rp. 2 billion.

b. Opportunity costs = Rp. 350 million.

​​​​​​Unlike accounting costs, opportunity cost is the next best alternative of Danya. This is also called implicit cost. That is the earning opportunity that Danya has to give up in order to set up the English course. If he doesn't start the course, he can work at the educational institution and earn Rp. 350 million. So, if he wants to open the English course, he has to give up this earning opportunity. So, the opportunity cost of Danya is Rp. 350 million.

answered by: anonymous