Question

Pete owns a shoe-shine business. Which of the following costs would be implicit costs?

(i) shoe polish
(ii) rent on the shoe stand
(iii) wages Pete could earn delivering newspapers
(iv) interest that Pete’s money was earning before he spent his savings to set up the shoe-shine business

Answer 1

(iii) and (iv)

Step-by-step explanation:

The correct answer is option (iii) and (iv).

Implicit cost is the cost which is not reported in the separate expense.

here, the wages Pete earn by delivering newspaper is known as implicit costs because this cost is not included in the Shoe-shine business.

And also the interest that Pete money was earning has nothing to do with the cost of the shoe-shine business hence, it will also come under implicit cost.

so, both the options are an example of implicit costs.