Question

Charles has decided to open a​ lawn-mowing company. To do​ so, he purchases mowing equipment for ​$​5000, buys gasoline ​($ 2.50 in gas is required to mow each​ yard), and pays a helper ​$20.00 per yard. Prior to opening the lawn​ company, Charles earned ​$6,000 as a lifeguard at the neighborhood swimming pool. Assume the money he used to purchase the mowing equipment could otherwise have earned 1 percent per year in the bank and that the mowing equipment depreciates at 20percent per year. Charles plans to mow yards per year.

Part 2
What is​ Charles's implicit costLOADING... of​ production?
Part 3
​Charles's implicit cost of production is ​$

enter your response here per year. ​(Enter your response as an​ integer.)

Answer 1

The total implicit cost of production for Charles is:

$50 (interest on invested money) + $1,000 (depreciation of equipment) + $6,000 (opportunity cost of his time) = $7,050.

Step-by-step explanation:

Implicit costs are the opportunity costs associated with using resources for a particular venture instead of their next best alternative use. In this case, Charles has incurred several implicit costs:

Interest on the money invested in the mowing equipment: Charles could have earned 1 percent per year in the bank, so the implicit cost is 1 percent of $5,000.

Implicit cost = 0.01 * $5,000 = $50.

Depreciation of the mowing equipment: The equipment depreciates at a rate of 20 percent per year.

Implicit cost = 0.20 * $5,000 = $1,000.

Opportunity cost of his time: Charles earned $6,000 as a lifeguard at the neighborhood swimming pool, which he gave up to start the lawn-mowing business. This is also an implicit cost.