discuss opportunity cost-explicit and implicit costs, Managerial Economics

Discuss and analyze following statement:

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 were 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.

a. Compute both Burton Cumming's explicit costs per month and his implicit costs per month.

b. Compute the opportunity cost of the resources used by Burton Cummings each month.

c. What advice would you give Burton Cummings? Explain your advice in terms of opportunity costs.

Definitions according to my textbook:

1. Opportunity cost - What a firm's owners give up to use resources to produce goods or services.

2. Explicit costs - monetary opportunity costs of using market-supplied resources.

3. Implicit costs - nonmonetary opportunity costs of using owner-supplied resources.

4. I have provided an example of a discussion post (single-spaced; no title page, etc.) to be used as reference when completing the assignment above:

Economic Theory Simplifies Complexity

Practical solutions to challenging real-world problems are seldom found in cookbook formulas, superficial rules of thumb, or simple guidelines and anecdotes. Profitable solutions generally require that people understand how the real world functions, which is often far too complex to comprehend without making the simplifying assumptions used in theories. Theory allows people to gain insights into complicated problems using simplifying assumptions to make sense out of confusion, to turn complexity into relative simplicity. By abstracting away from the irrelevant, managers can use the economic way of thinking about business problems to make predictions and explanations that are valid in the real world, even though the theory may ignore many of the actual characteristics of the real world (Thomas & Maurice, 2011).

Posted Date: 3/12/2013 2:10:08 AM | Location : United States

Related Discussions:- discuss opportunity cost-explicit and implicit costs, Assignment Help, Ask Question on discuss opportunity cost-explicit and implicit costs, Get Answer, Expert's Help, discuss opportunity cost-explicit and implicit costs Discussions

Write discussion on discuss opportunity cost-explicit and implicit costs
Your posts are moderated
Related Questions
Compare the price elasticity at two parallel demand curves at a given price. This has been explained in Fig above where two demand curves AB and CD are given that are parallel to e

ISOQUANT ANALYSIS In the long run it is possible for a firm to produce the same output using different combinations of two factors of production.  For instance it the two fact

A firm's technology needsit to combine 5 person-hours of labor with 3 machine-hours to make 1 unit of output. The firm has 15 machines in place and the wage rate rises from $10 per

Methods which rely on quantitative data: Rule-based forecasting Data mining Quantitative analogies Discrete event simulation Neural networks Extrapo

Relevance of The Law of Diminishing Returns The law of diminishing returns is important in that it is seen to operate in practical situations where its conditions are fulfille

Question 1: (a) How do economists go about studying the economics of the public sector? Describe the four stages of analysis. (b) What are the main reasons explaining syst

Q. Show the method of production? A process or method of production is a combination of inputs essential for the production of output. A method of production is technically eff