Question
Asked Dec 3, 2019
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Tom runs a shoe-shine stand at the airport. Tom has no skills, no job experience, and no alternative jobs. Entrepreneurs in the shoeshine business earn $13,000 a year. Tom pays the rent of $3,000 a year and his total revenue is $16,000 a year. He borrowed $1,000 at 25 percent a year to buy equipment. At the end of one year, Tom was offered $700 for his business and all its equipment. Calculate Tom’s annual explicit costs, implicit costs, and economic profit.

 

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Expert Answer

Step 1

Explicit cost is the direct out of pocket expense for a firm for example wages and salaries, rent, and material cost and interest payments.

Implicit cost in simpl...

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