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# Explicit and implicit costs

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When Burton Cummings graduated with honors from the Canadian Trucking Academy, his father gave him a \$350,000 tractor-trailer rig. Recently, Burton was boasting to some fellow truckers that his revenues were typically \$25,000 per month, while his operating costs (fuel, maintenance, and depreciation) amounted to only \$18,000 per month. Tractor-trailer rigs identical to Burton's rig rent for \$15,000 per month. If Burton was driving trucks for one of the competing trucking firms, he would earn \$5,000 per month. Burton is proud of the fact that he is generating a net cash flow of \$7,000 (\$25,000 - \$18,000) per month, since he would be earning only \$5,000 per month if he were working for a trucking firm.

Compute both Burton Cummings's explicit costs per month and his implicit costs per month. Compute the opportunity cost of the resources used by Burton Cummings each month. What advice would you give Burton Cummings? Explain your advice in terms of opportunity costs.

#### Solution Summary

computation of explicit costs
computation of implicit costs
advice with regards to opportunity cost

\$2.19

## Explicit Cost, Implicit Cost or Not Needed to Be Reflected

Tom total revenue from his cafe is 50000/ yr, he bought a coffee machine costing \$5000 with (\$2000 of which is his savings which the bank gave him an interest rate of 5% and \$3000 is a loan from the bank which the rates is 10%). If he work as a sales man he can earn \$30000 /yr. What is his explicit and implicit cost.

I know that the (5% of 2000) is implicit cost.
\$30000 + (10% of 3000) is the explicit cost.

However i am confuse. Do i need to add the cost of the machine of \$5000 to explicit or implicit cost? Or i don't have to place this value any where.

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