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
Compute both Burton Cummings’s explicit costs per month and his
implicit costs per month.
Compute the opportunity cost of the resources used by Burton
Cummings each month.
What advice would you give Burton Cummings? Explain your advice
in terms of opportunity costs.