The Cost of a Flower Business. Jen left a job paying $75,000 per year to start her own florist shop in a building she owns. The market value of the building is $150,000. She pays $30,000 per year for flowers and other supplies, and has a bank account that pays 12 percent interest. What is the economic cost of Jen's business?

Economic Costs = $123,000

Explanation:

Since Jen has left the job, she will not receive any further money. Therefore, the non-paying salary is an economic cost. Moreover, she owes a building with a market value of $150,000. It is also an economic cost as it can only depreciate, and Jen cannot use the building outside any other location. For that bank, a 12% interest will be added. Supplies expense is an economic cost.

Economic Costs = $ (75,000 + 150,000 x 12% + 30,000)

Economic Costs = $ (105,000 + 18,000) = $123,000