Rina is working for a marketing firm making $50,000 per year but considers starting her own marketing company. Rina has determined that to launch the business, she needs to invest $80,000 of her own funds. The annual cost of running the business will include $75,000 for the rent of the office space, $190,000 for employee wages, and $6,000 for materials and utilities. Rina 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 5%.

Question

Business

Simone Hanson

24 July, 01:58

Rina is working for a marketing firm making $50,000 per year but considers starting her own marketing company. Rina has determined that to launch the business, she needs to invest $80,000 of her own funds. The annual cost of running the business will include $75,000 for the rent of the office space, $190,000 for employee wages, and $6,000 for materials and utilities. Rina 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 5%.

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Lillie Ruiz · Answer 1

accounting cost:

rent 75,000

employee 190,000

materials 6,000

total 271,000

economic cost

accounting cost 271,000

wages opportunity cost 50,000

interest opportunity cost 4,000

total 325,000

Explanation:

The accounting will only consider the explicit cost (those from which RIna is liable to)

While the econmist analysis will also consider the opportunities Rina renounce by taking their course of action. That is the wages, rent or interest it could earn fro mthe factor input of the business.