Question

Rather than put the $100,000 that his grandmother left him in a mutual fund and earn 5% each year, Tommy Wang quit his job that paid $60,000 per year and used the $100,000 to start Wang's Wicker Furniture Store. He rented a showroom for $15,000 for the year, purchased $60,000 in wicker furniture, and incurred costs of $40,000 for sales help and advertising. He also purchased capital equipment that depreciates $5,000 each year. In his first year, his revenue was approximately $150,000. What are the implicit costs of Wang's Wicker Furniture Store? A. $60,000 B.$7,000 C.$69,000. D. $65,000.

Answer 1

Answer:

D. $65,000.

Explanation:

Implicit cost takes into account the alternatives that have been sacrificed. thus, alternatives sacrificed are interest on deposits (100,000 ×5%) and salary foregone (60,000)

Total implicit cost = 5,000 + 60,000

= 65,000

Answer 2

Answer:

D. $65,000.

Explanation:

The implicit cost is the return on factor of production from the best alternative to the current use.

In this case we have the capital of Tommy Wang which, can generate interest and their wages from his previous job

interest 100,000 x 5% =   5,000

lost wages                      60,000  

Total return                     65,000