Question

Charles has decided to open a​ lawn-mowing company. To do​ so, he purchases mowing equipment for ​$7 comma 0007,000​, buys gasoline ​($2.302.30 in gas is required to mow each​ yard), and pays a helper ​$15.0015.00 per yard. Prior to opening the lawn​ company, Charles earned ​$6 comma 0006,000 as a lifeguard at the neighborhood swimming pool. Assume the money he used to purchase the mowing equipment could otherwise have earned 11 percent per year in the bank and that the mowing equipment depreciates at 2525 percent per year. Charles plans to mow 350350 yards per year. What is​ Charles's implicit costLOADING... of​ production? ​Charles's implicit cost of production is ​$nothing per year. ​(Enter your response as an​ integer.)

Answer 1

Charles's implicit cost of production:

Total Revenue = $6000

Add: Depreciation Cost

$(7,000 x 25%) = 1,750

Add: Bank revenue $(7,000 x 11%) = 770

Total Implicit cost of production = $8,520

Step-by-step explanation:

A cost is called implicit when the cost is not taken into consideration as a separate cost. It is also called an opportunity cost as it is owned by the firm.