Question

Meredith’s currently makes $6,000 a month and is considering enrolling in a full-time MBA program that will require her to leave her job. In addition, the MBA program will cost $2,000 a month.

Q: The explicit cost of attending the MBA program is ___ per month.

Q: The implicit cost of attending the MBA program is ___ per month.

Q: The opportunity cost of attending the MBA program is ___ per month.

Answer 1

Lets say you are opening a business in your own house which costs you 1000 dollars,So in your account books you would write cost of running business as 1000 which in terminology is called EXPLICIT COST.So it is cost that we directly incur.But your business is being run in your own home but that does not mean it is not involving any trade off, the same home would have been given for a rent of 500 dollars.So you are forgoing 500 dollars for running your business.So this is indirectly but necessarily some kind of cost which is called IMPLICIT COST. Implicit cost occurs whenever we own something and forgo it for other thing so the lost money is treated as IMPLICIT COST.

Oppurtinity cost is sum of both implict and explicit costs.

In the above example,you pay a fee of 2000 dollars only.So EXPLICIT COST = 2000

But in order to study, you are leaving a job that gives you 6000 dollars so indirect cost or IMPLICIT COST = 6000

Oppurtinity cost is total cost incurred whether it is direct or indirect (sum of explicit and implicit) = 2000+6000 = 8000

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