Question

Hubert lives in San Diego and runs a business that sells boats. In an average year, he receives $851,000 from selling boats. Of this sales revenue, he must pay the manufacturer a wholesale cost of $476,000; he also pays wages and utility bills totaling $281,000. He owns his showroom; if he chooses to rent it out, he will receive $71,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Hubert does not operate this boat business, he can work as an accountant, receive an annual salary of $34,000 with no additional monetary costs, and rent out his showroom at the $71,000 per year rate. No other costs are incurred in running this boat business.

Identify each of Bob's costs in the following table as either an implicit cost or an explicit cost of selling boats.

a. The salary Bob could earn if he worked as an accountant
b. The wholesale cost for the boats that Bob pays the manufacturer
c. The rental income Bob could receive if he chose to rent out his showroom
d. The wages and utility bills that Bob pays

Answer 1

(a). Implicit cost

(b) Explicit cost

(c) Implicit cost

(d) Explicit cost

Step-by-step explanation:

Implicit cost are the cost which a person can earn in a period.

Explicit cost are the cost which a person pays in same period for other work.

So by this, we can clearly determine explicit and implicit cost for the following statements.

(a). Implicit cost (Because salary is an earning for Bob.)

(b) Explicit cost ( Because Bob pays an amount for different work)

(c) Implicit cost (Because rental is an earning for Bob.)

(d) Explicit cost ( Because Bob pays an amount for wages and utility)