Question

Angus works as a dairy farmer in Minnesota. He loves his work and finds a great deal of personal satisfaction in providing the highest quality dairy products to his community of Mackahatchie. However, the dairy business has not been doing so well lately and Angus is considering changing careers and becoming a technician at the local dairy plant, where he would earn $27,000 a year. Being a rational decision maker, Angus decides to make a list of the costs of keeping his job as a farmer and asks you to help him out. Please classify Angus' costs according to whether they are explicit costs or implicit costs.

Answer 1

Explicit costs are the costs which requires the money to pay.

On the other hand, implicit costs refers to the benefit that is foregone by choosing some other work or doing some other activity.

Therefore,

Explicit costs are as follows:

1. Wages pays to his hired hand

2. Buys feed for his cows.

3. Gas expense that is used in truck

Implicit costs are as follows:

1. Foregone income of $27,000 from working at a dairy plant as a technician.

2. Time taken for extracting milk from all the cows.