Leah is the owner of a sunflower shop that earns 0 (zero) economic profit. Last year, her total revenue was $225,000, her rent was $10,000, her labor costs were $85,000, and her overhead expenses were $11,000.
a. What were Leah's total explicit costs? provide an incorrect answer
b. What were Leah's total implicit costs?
c. Currently, Leah has 8 employees; with 8 employees, her sunflower shop can produce 12 wedding bouquets per day. If she hired a ninth employee, shed be able to produce 16 wedding bouquets per day. What is the marginal product, in terms of wedding bouquets, of the ninth employee? on
Title: Understanding Leah's Sunflower Shop Economics
Introduction
Leah, the owner of a sunflower shop, operates her business with careful consideration of both explicit and implicit costs. In this essay, we will delve into Leah's financial landscape, analyzing her costs and the impact of hiring additional employees on her production capacity.
Leah's Economic Scenario
Last year, Leah's sunflower shop generated a total revenue of $225,000. Her explicit costs consist of rent amounting to $10,000, labor costs of $85,000, and overhead expenses totaling $11,000. To calculate the total explicit costs, one might erroneously sum up all these components without considering implicit costs.
Incorrect Calculation of Total Explicit Costs
To determine Leah's total explicit costs incorrectly, one might simply add up the individual explicit costs without accounting for implicit expenses. By adding $10,000 (rent) + $85,000 (labor costs) + $11,000 (overhead expenses), one would mistakenly arrive at a total explicit cost of $106,000.
Implicit Costs in Leah's Business
Implicit costs are the opportunity costs associated with utilizing resources in a particular way. In Leah's case, implicit costs may include the value of her time and any foregone opportunities. While explicit costs are easily quantifiable, implicit costs are intangible but crucial in assessing the full economic picture.
Leah's Total Implicit Costs
Considering Leah's dedication to managing her sunflower shop, her implicit costs could be substantial. These costs encompass the value of her time spent running the business, potential income from alternative ventures foregone due to her commitment to the shop, and any personal sacrifices she makes for the business.
Marginal Product of Labor Expansion
Leah currently employs 8 workers in her sunflower shop, enabling her to produce 12 wedding bouquets daily. However, by hiring a ninth employee, Leah anticipates increasing her daily bouquet production to 16 units. This expansion prompts an analysis of the marginal product of the additional labor input.
Calculating the Marginal Product
The marginal product of labor refers to the change in output resulting from employing an additional unit of labor. In this scenario, the ninth employee contributes to a production increase from 12 to 16 wedding bouquets per day. Hence, the marginal product of the ninth employee is 4 wedding bouquets per day.
Conclusion
Leah's business exemplifies the intricate interplay between explicit and implicit costs in economic decision-making. Understanding the nuances of these costs is pivotal for entrepreneurs like Leah to make informed choices and optimize their operations. By recognizing both tangible and intangible expenses and evaluating the impact of labor on production efficiency, Leah can navigate her sunflower shop's economics with clarity and foresight.