Costs of Production: Differentiating Explicit & Implicit Costs 1 Bob's Bed & Breakfast. (15 marks) Bob recently quit a job that paid him $2,500 per month in order to buy a bed and breakfast house in a remote comer of Vancouver Island. The motivation for his life style change came from a surprise inheritance from his long lost uncle who he had never met. His uncle, feeling guilty for never sending "birthday money to his sister's son, had left Bob $65,000 dollars in his will . Bob's mom told him to put the money in a corporate bond that was paying 9% retum annually. Instead Bob decided to check out of the busy city life and buy the B&B For the down payment and renovations, Bob used $50,000 of his inheritance. It turned out that Bob's remote B&B was much more popular than expected and his two rooms were rented out for a total 425 nights combined between them in the first 12 months of operation. The nightly rental rate was $200 Bob paid the following out-of-pocket costs during the first year of operating the bed and breakfast business Monthly Interest he pays on a bank loan $ 2,100 Utility and Maintenance Expenses quarterly $.4.140 Property Taxes and Insurance annually $ 21210 Food for the year (cheap breakfasts!) $13.000 Part-Time Cleaning Staff monthly S 300 Other (supplies, etc) in total for the year S 1930 DC SUCCA DDM Part-Time Cleaning Staff monthly Other (supplies, etc) in total for the year ERA $ 300 $11330 1) Calculate the total annual explicit costs. Show calculations. Explain what Explicit Costs actually are (define). (2 marks) 2) Calculate the total annual implicit costs. Show calculations. Explain what Implicit Costs actually are (define). (6 marks) 3) Calculate the total annual accounting profit. Explain in words what accounting profit actually is not just restating its formula. (2 marks) 4) Calculate the total annual economic profit. Explain in words what economic profit actually is not just restating its formula. (2 marks) 5) Based on your calculation of economic profit in the previous question, would you advise Bob to stay in this business? Explain your answer first considering only the Economic profit/loss calculation. AND then ALSO include a more common sense" answer considering your calculation in question (3)