Question

1. Aji Fatou has the option of leasing out this space instead of opening a restaurant. The market rent for his property is $600. Explain how you would interpret his profits under Perfect Competition and Monopoly in the restaurant business in  relation to the rents she would earn from leasing out his property. In your answer, identify Aji Fatou’s explicit and implicit costs and accounting profits from the restaurant business in each market

Answer 1

Starting own business means Aji losing out the opportunity of earning the $ 600 from leasing out this space.

Under the perfectly competitive market and monopoly, we consider both the implicit and explicit costs. Implicit costs are not a direct cost while the explicit costs are direct and can be attributed to the production of goods and services.

The option of leasing out would be considered as the opportunity cost and it would come under the implicit cost heading. it reduces the profits of the monopoly and perfectly competitive firms. Such profit is called economic profit.

On other hands, in the accounting profit, only explicit costs are considered while the implicit costs are not included.