Boba Tea

Living in the Bay Area means that there are often numerous boba shops within a 5-mile radius. In order to keep these businesses afloat and competitive, the business owners need to evaluate their costs of production. Their costs are split into explicit and implicit costs. Explicit refers to the payment of resources which would mean paying the baristas, the rent for the storefront, and buying the boba, tea, cream, cups, and straws. The implicit costs would be how they choose to use the resources once it is in the store. If there is a more profitable way to use the resources to make more money, the owner would also have to take that into consideration for implicit costs.

Before opening the store, the store owner would need to identify the fixed costs (monthly rent, hourly wage) and the variable costs (materials to make the drink). By then averaging both the fixed and variable costs, they would decide to stay in business, make changes, or shut down the business.

Sometimes it is difficult to know exactly how much is needed and on a busy day, the owner may wish that they could produce more. While it is difficult to add machines in the short run, the employer could add workers. When planning for the long run in the future, the owner would have more experience and enough time to adjust to the resources.

If you were the owner of a shop, what would you do?

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