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"An entrepreneur currently rents out a spare bedroom in his house for $500 a month. He...

"An entrepreneur currently rents out a spare bedroom in his house for $500 a month. He plans on starting a small business selling face masks. To produce these face masks, he will use the spare bedroom as a work space which means he can no longer rent the room. Which of the following is true?"

The $500 should be included as a negative cash flow since it is an opportunity cost

The $500 should be included as a negative cash flow since it is a negative externality

The $500 should be included as a positive cash flow since it is a positive externality

The $500 should not be included as a negative cash flow since it is a sunk cost
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Answer #1

Answer is A. It should be included as negative cash flow. it is added as implicit cost in business because it has opportunity cost of $500, which could be earned if he has not started his business.

Economic profit = Total revenue - explicit cost - implicit cost.

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