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John is considering quitting his job and operating his own business. Consider the following information for the coming year if he goes ahead to operate

John is considering quitting his job and operating his own business. Consider the following information for the coming year if he goes ahead to operate the business.

He has to spend $30,000 to purchase furniture and equipment, and their market values will decrease by 10% in the first year of operation.

He has been working as a dancer earning an income of $450,000 a year. To operate the business, he has to quit his dancer job and work in his own firm.

He has to pay $150,000 on wages in a year, of which $50,000 will be paid to himself.

He also has to borrow $100,000 at 3% annual interest rate from a bank in the coming year.

Accounting depreciation of the capital in his firm is $4,000.



(a) What is the explicit cost of John's firm in the coming year? Show all the steps of calculation.

(b) What is the implicit cost (including economic depreciation) of John's firm in the coming year? Show all the steps of calculation.


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a Explicit Cost Calculation 1 Furniture and Equipment Purchase Cost 30000 2 Wages Paid to Employees ... blur-text-image

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