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.

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

1)

Burton Cummings's explicit costs per month include his operating costs, which consist of fuel, maintenance, and depreciation. These costs amount to $18,000 per month.

His implicit costs per month include the opportunity cost of his father's gift, the $350,000 tractor-trailer rig. Since Burton could have rented out the rig for $15,000 per month, this is considered an implicit cost. Therefore, his implicit costs are $15,000 per month.

2)
The opportunity cost of the resources used by Burton Cummings each month includes both his explicit and implicit costs. In this case, his explicit costs are $18,000 per month, and his implicit costs are $15,000 per month.

Therefore, the total opportunity cost of the resources used by Burton Cummings each month is $18,000 (explicit costs) + $15,000 (implicit costs) = $33,000.

1) To compute Burton Cummings's explicit costs per month, we need to consider the costs he incurs that involve actual monetary payments. These include:

- Operating costs: $18,000 per month.
- Rent for an identical tractor-trailer rig: $15,000 per month (this is not an actual cost for Burton since he owns the rig, but it represents the opportunity cost of renting it out).

Therefore, Burton's explicit costs per month amount to $18,000 + $15,000 = $33,000.

To compute Burton Cummings's implicit costs per month, we need to consider the opportunity cost of using his own resources. In this case, the resource in question is Burton's labor. The amount he would earn if he worked for a trucking firm is $5,000 per month.

Therefore, Burton's implicit costs per month amount to $5,000.

2) The opportunity cost of the resources used by Burton Cummings each month is the value of the next best alternative foregone. In this case, the opportunity cost is tied to Burton's labor. If he were working for a trucking firm, he would earn $5,000 per month.

Therefore, the opportunity cost of the resources used by Burton Cummings each month is $5,000.