Asked by Jakayla Richburg on Jun 12, 2024
Verified
(Scenario: Betty's Cookie Shop) Use Scenario: Betty's Cookie Shop.Given the information provided,Betty's implicit costs are: Scenario: Betty's Cookie Shop
Betty runs a cookie shop where she sells cookies for $1 each.She employs five people,each of whom worked a total of 500 hours last year;she paid them $10 per hour.Her costs of equipment and raw materials add up to $75,000.Her business ability is legendary,and other companies have offered to pay Betty $100,000 to come to work for them.She also knows she could sell her cookie shop for $150,000.The bank in town pays an annual interest rate of 3% on all funds deposited with it.
A) her salary if she worked elsewhere and interest she forgoes by not selling her shop and putting the money in the bank.
B) the cost of labor,equipment,and raw materials.
C) the revenue she receives from selling her cookies plus the cost of labor,equipment,and raw materials.
D) revenue she receives from selling her cookies and her labor costs.
Implicit Costs
The opportunity costs of using resources owned by the firm for its own production instead of selling or renting them to others.
Interest Rate
The price, calculated as a percentage of the amount borrowed, that a lender charges a borrower for the use of their savings for one year.
Salary
A fixed regular payment, typically paid on a monthly or biweekly basis but often expressed as an annual sum, made by an employer to an employee.
- Draw distinctions between explicit and implicit costs and realize their importance in the assessment of economic and accounting profits.
Verified Answer
JH
Jeslie HernandezJun 14, 2024
Final Answer :
A
Explanation :
Betty's implicit costs include her salary if she worked elsewhere and the interest she forgoes by not selling her shop and putting the money in the bank. The offered salary of $100,000 and the potential sales price of $150,000 represent the opportunity cost of Betty's decision to run her cookie shop. The bank's annual interest rate of 3% is the cost she incurs by not depositing the sales price of her shop into the bank.
Learning Objectives
- Draw distinctions between explicit and implicit costs and realize their importance in the assessment of economic and accounting profits.