Jill took $50 comma 000 that she had in savings and started her own business. If left in investments she would have earned $5 comma 000 this year. Jill also left a job that paid her $60 comma 000 a year and plans on paying herself $40 comma 000. Materials and other labor costs will be $70 comma 000. The company is located in a building that Jill owns. She could have rented the building out for $30 comma 000 but plans on charging the company only the insurance and mortgage payment of $20 comma 000. What do the accounting and economic costs equal

Question

Business

Jaeden Watkins

4 June, 14:28

Jill took $50 comma 000 that she had in savings and started her own business. If left in investments she would have earned $5 comma 000 this year. Jill also left a job that paid her $60 comma 000 a year and plans on paying herself $40 comma 000. Materials and other labor costs will be $70 comma 000. The company is located in a building that Jill owns. She could have rented the building out for $30 comma 000 but plans on charging the company only the insurance and mortgage payment of $20 comma 000. What do the accounting and economic costs equal

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accounting cost: 130,000

economic cost: 185,000

Explanation:

accounting cost: explicit cost of the business

Jill salary 40,000

other material and labor cost 70,000

insurance and mortgage payment 20,000

total accounting cost 130,000

Economic cost: explicit cost + implicit cost whic are, the opportunity cost of the factors. cost of the best rejected option

accounting cost: 130,000

labor opportunity cost: 20,000

difference in salaries between Jill current wage and rejected labor

capital opportunity cost: 5,000 interest on saving

rent opportunity cost: 30,000

it would have receive 30,000 while currently receives 0.

total opportunity cost: 55,000

economic cost: 130,000 + 55,000 = 185,000