Question

Suppose a firm has an annual budget of $150,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner-manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $320,000 per year. Answer the indicated questions on the basis of this information. What are the annual implicit costs for the firm described above

Answer 1

the annual implicit cost for the firm is $90,000

Step-by-step explanation:

The computation of the annual implicit cost is shown below;

The implicit cost means the opportunity cost

Since in the given situation of the owner does not select to pay himself but he would received $90,000 by working somewhere

so here $90,000 represent the implicit cost

Hence, the annual implicit cost for the firm is $90,000