Question

Suppose a person quits a job earning ​$45 comma 000 per year and starts a business with ​$175 comma 000 withdrawn from a​ money-market account earning 12 percent per year. The implicit cost of the business is ________ for the entrepreneur’s time plus ________ for the entrepreneur’s funds.

Answer 1

$45,000 and $21,000

Step-by-step explanation:

The computation of the implicit cost and the extra amount is shown below:

Implicit cost means the cost of opportunity lost so quitting job means opportunity cost.

Therefore,

The implicit cost of the business is $45,000 per year for the entrepreneur’s time plus the amount is $21,000 for the fund of entrepreneur

= $175,000 × 12%

= $21,000