Suppose you have started a snack food delivery business. Students order snacks via the Internet. You shop at local stores to fill these orders and then deliver the orders. To operate your business, you pay $500 per month to lease computer time from a local Web-hosting company to use their server to host and maintain your Web site. You also own a SUV that you use to make deliveries. Your monthly car payment is $300 and you pay $100 in insurance costs. Each order that you fill takes, on average, a half hour and consumes $0.50 worth of gasoline. When you fill an order, you pay the grocer for the merchandise. You then collect payment, including a delivery fee from the students to whom you sell. If you did not operate this business, you could work at the campus dining hall, earning $6 per hour. You operate your business five days a week, Monday through Friday. On weekends, your business is idle and you work in the campus dining hall.a. What are your explicit costs and what are your implicit costs? What are your accounting costs and what are your economic costs, and how do they differ?
b. Last week you purchased five large cases of Fritos for a customer who, as it turned out, did not accept delivery. You paid $100 for these cases. You have a deal with the grocers that they will pay you $0.25 for every dollar of returned merchandise. Just this week, you found a fraternity on campus that will buy the five cartons for $55 (and will pick them up from your apartment, relieving you of the need to deliver them.) What is the opportunity cost of filling this order? Should you sell the Fritos to the fraternity?
c. Suppose you are thinking of cutting back on your operation from five days to four days a week - you will not operate on Monday and will work instead in the campus dining hall. What costs are nonsunk with respect to this decision? What costs are sunk?