Asked by Parker Murdie on Jun 12, 2024
Verified
Jaxon borrows $10,000 from a bank and withdraws $20,000 from his personal savings to open a tattoo parlor. The interest rate is 3 percent for both the bank loan and his personal savings. Jaxon's implicit costs are $900.
Implicit Costs
The opportunity costs of using resources owned by the business for its operations instead of allocating them to their best alternative use.
Interest Rate
The expense associated with taking out a loan or the earnings from investments, usually shown as a percent of the total amount invested or borrowed.
- Contrast explicit and implicit costs, understanding their importance for economic and accounting profit outcomes.
Verified Answer
AN
Aleksandar NovicicJun 14, 2024
Final Answer :
False
Explanation :
Jaxon's implicit costs are the opportunity costs of using his own resources, in this case, the interest he could have earned on his personal savings. With a 3 percent interest rate on $20,000, his implicit costs would be $600 (0.03 * $20,000), not $900.
Learning Objectives
- Contrast explicit and implicit costs, understanding their importance for economic and accounting profit outcomes.