Eileen is working for a marketing firm making 60000 per year

Eileen is working for a marketing firm making $60,000 per year but considers starting her own marketing company. Eileen has determined that to launch the business, she needs to invest $100,000 of her own funds. The annual cost of running the business will include $70,000 for the rent of the office space, $210,000 for employee wages, and $5,000 for materials and utilities. Eileen plans to manage the business, which means that she will have to quit her current job. Suppose that the interest rate (or rate of return) on investments in the economy is 6%. Eileen\'s total explicit cost per year is Eileen\'s total cost per year is Eileen is working for a marketing firm making $60,000 per year but considers starting her own marketing company. Eileen has determined that to launch the business, she needs to invest $100,000 of her own funds. The annual cost of running the business will include $70,000 for the rent of the office space, $210,000 for employee wages, and $5,000 for materials and utilities. Eileen plans to manage the business, which means that she will have to quit her current job. Suppose that the interest rate (or rate of return) on investments in the economy is 6%. Eileen\'s total explicit cost per year is Eileen\'s total cost per year is Eileen is working for a marketing firm making $60,000 per year but considers starting her own marketing company. Eileen has determined that to launch the business, she needs to invest $100,000 of her own funds. The annual cost of running the business will include $70,000 for the rent of the office space, $210,000 for employee wages, and $5,000 for materials and utilities. Eileen plans to manage the business, which means that she will have to quit her current job. Suppose that the interest rate (or rate of return) on investments in the economy is 6%. Eileen\'s total explicit cost per year is Eileen\'s total cost per year is

Solution

Explicit costs are out of pocket costs = 70000(rent) + 210000(wages) + 5000(materials and utilities) = 285000

Implicit costs = 60000(sacrifice cost of job) + 6000(6% on investment of 100000) = 66000

Total economic costs = 285000+66000 = 351000