Asked by Blake cannistraro on Jun 19, 2024
Verified
The Cakery Bakery sells 200 muffins at a price of $2 per muffin. Its explicit costs for producing 200 muffins are $350. If the bakery is earning a normal rate of return, then its implicit costs must be
A) $0.
B) $50.
C) $350.
D) $400.
Explicit Costs
Payments made directly to external parties as part of business operations, including salaries, rental fees, and the cost of goods.
Implicit Costs
are indirect expenses that do not involve a direct payment of money but represent a loss of opportunity to use resources elsewhere.
Normal Rate
A term that can refer to the typical or standard interest rate charged by lenders or expected returns on investments under normal conditions.
- Appreciate the influence of explicit and implicit costs on the evaluation of profit.
- Discern the role and calculation of normal rate of return in firm economics.
Verified Answer
ES
elfimpz SubaruJun 23, 2024
Final Answer :
B
Explanation :
Implicit costs are the opportunity costs of using resources that the firm already owns. The bakery's total revenue from selling 200 muffins at $2 each is $400. Its explicit costs are $350. If the bakery is earning a normal rate of return, its total costs (explicit plus implicit) must equal its total revenue. Therefore, the implicit costs must be $50 ($400 total revenue - $350 explicit costs = $50 implicit costs).
Learning Objectives
- Appreciate the influence of explicit and implicit costs on the evaluation of profit.
- Discern the role and calculation of normal rate of return in firm economics.