Question

Betty runs a shop where she sells $1 each cookie. In a year, she could sell 200,000 cookies average. She employs 5 people who each worked a total of 500 hours a year. She paid them a wage of $10 per hour. She also has costs from equipment and raw materials around $75,000 a year. Other companies have offered to pay Betty $80,000 if she would come to work for them. She could rent out her shop for $5,000; assume there is no depreciation. Betty’s implicit costs are:

her salary if she worked elsewhere and rent that she forgoes.

The revenue she receives from selling her cookies, labor costs, and equipment cost

Labor costs and equipment and raw material costs

Revenue she receives from selling her cookies and labor costs

Answer 1

her salary if she worked elsewhere and rent that she forgoes.

(Implicit cost is the benefit forgone by not working somewhere else. So, implicit cost is the salary forgone which she would have earned by working somewhere else and the rent forgone.)