Question

Which of the following would be an implicit cost for a business owner?

Multiple Choice
O
O
O
O
the $40,000 profit for this fiscal year
the $50,000 salary the entrepreneur could be making as a CPA
the $10 per unit cost for production of widgets
the $1500 electric bill for his business

Answer 1

In the context of a business owner, an implicit cost would be the salary they could make in an alternative occupation, such as the $50,000 salary the entrepreneur could earn as a CPA. This represents the opportunity cost of the business owner's decisions.

Step-by-step explanation:

The implicit cost for a business owner would be the $50,000 salary the entrepreneur could be making as a CPA. This represents the opportunity cost of the entrepreneur's time and what they could be earning if they were employed elsewhere instead of running their own business. Implicit costs are the earnings foregone by choosing one option over another and do not involve a direct monetary payment. On the other hand, explicit costs are the direct payments a firm makes to operate its business, such as wages, rent, and materials.

To assess whether a business is economically successful, we need to consider both accounting profit and economic profit. Accounting profit is calculated by subtracting the explicit costs from total revenue, while economic profit also deducts the implicit costs. For example, if Eryn quits her job at a corporate law firm, where she earns $125,000 annually, to start her own practice, this lost salary would be an implicit cost to consider when determining if her new legal practice is profitable even after explicit costs are covered.