Homework Answers
Suppose a person quits a job earning $40,000 per year and starts a business with $120,000 withdrawn from a money-market account earning 10% per year.
The implicit cost of the business is $40,000 for entrepreneur’s time is $40,000 PLUS
$12,000 the entrepreneur’s fund.
Implicit cost is the opportunity cost. It includes the benefit of entrepreneur’s own investment and benefit of own time and services.
In the given question, $40,000 that the person would get from the job will the benefit of own services and time.
It also includes the benefit of own investment. The interest the person sacrificed will be the implicit cost of entrepreneur’s fund. It will be 10% of $120,000 = $12,000.
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