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March 25, 2017

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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 was 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.

1)Compute both Burton Cummings’s explicit costs per month and his implicit costs per month.
2)Compute the opportunity cost of the resources used by Burton Cummings each month.

  • Economics - ,

    1.Burton Cummings’s explicit costs per month = $18000

    2.Opportunity cost = If he would have rented it , he would have earned $15,000 + Gain in not spending the $18,000 on maintenance + $5000 that he would have earned by himself driving for one of the competing firms, which totals to $38,000

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