Economic cost is calculated as the explicit and implicit costs of doing something. In this question, the $25,000 that Williams pays for MBA studies is an explicit cost. Additionally, the $35,000 of lost salary is the opportunity cost of his time. If he studies he does not have time to work and will therefore give up his salary. Adding these together, the economic cost is $60,000. We can demonstrate it this way: If he worked, he would have $35,000 of "income" at the end of the year and no educational expenses. If he studies, he will have no revenue and $25,000 of "expenses." So, the difference in "income" between the two options is $60,000.
This is simply the implicit cost of not working — if he studies he will lose his salary of $35,000. To calculate the economic cost we also need to include the explicit cost of studying — $25,000.
This is simply the explicit cost of studying. To calculate the economic cost we also need to include the implicit cost of his time, or his lost salary if he studies, of $35,000.
This answer is the difference between Williams' annual salary and the annual tuition and fees for MBA studies. It is not the annual total economic cost of Williams' MBA studies. See the correct answer for a complete explanation.
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