(On explicit and implicit costs)

Suppose you're considering owning your own restaurant. To do so, you'll have to resign from your current job that pays $46,000 per year and cash in your life savings of $200,000, which you have invested in mutual funds that return an average of 3% per year. You estimate that you'll have to spend $4000 during the year to maintain the equipment so that it maintains its market value of $200,000. It turns out that you currently own a building that you plan to use for your restaurant, which you currently rent out to others for $2500 per month. Finally, you anticpate that during the year you'll spend $40,000 on food, $40,000 for labor, and $14,000 for utilities and supplies.

Compute the economic costs of operating the restaurant during the first year, making sure to identify the explicit and implicit costs. This total, by the way, is the amount of revenues you will(On costs!) Fill in the Table below. (It's fun!)(See key below Table.) Round any values with decimal to one decimal place. (3 points; 0.10 points per correct cell)

Q	TC	FC	VC	AC = ATC	AFC	AVC	MC
0	$80			______	_______	_______	_______
10							$4 = TC/Q = VC/Q
20	$200
30			$240
40
50				$13.60			$20 = TC/Q = VC/Q

Key: Q = output;TC = total cost; VC = variable cost; FC = fixed cost; AC = average total cost = TC/Q; AFC = average fixed cost = FC/Q;AVC = average variable cost = VC/Q; MC = marginal cost = TC/Q = VC/Q (so remember, Q from 0 to 10 =10, from 10 to 20 = 10, etc.) (Hint: see red!Also, ask yourself, if Q = 0, what is VC?)

need to achieve a zero economic profit. (1 point for each of the segments below.)

Answer:

Explicit Costs = ________________ (identify entries and amounts below)(-

Implicit Costs = _________________ (identify entries and amounts below)(-

Total Costs = ____________________ (-