Question

Barney decides to quit his job as a corporate accountant, which pays $12,000 a month, and goes into business for himself as a certified public accountant.

He runs his business from his converted garage apartment, which he could rent out for $315 a month if he wasn’t using it as a home office. He must purchase office supplies worth $85 a month, and his monthly electricity bill has increased by $40 now that he is working out of his home office.

After six months of working from home, Barney has earned an average of $17,000 per month.

Instructions: Enter your answers as a whole number.

a. What are Barney’s monthly explicit costs?

     $ ________

b. What are Barney’s monthly implicit costs?

     $ ________

c. What are Barney’s monthly economic costs?

     $ ________

Answer 1

A]

Barney's monthly explicit costs = office supplies purchase + electricity bill = $85 + $40 = $125

Barney's monthly explicit costs = $125

B]

Barney's monthly implicit costs = Salary being foregone from accountant job + Garage rent = $12,000 + $315 = $12,315

Barney's monthly implicit costs = $12,315

C]

Barney's Monthly economic costs = Barney's monthly explicit costs + Barney's monthly implicit costs = $125 + $12,315 = $12,440

Barney's Monthly economic costs = $12,440