Question

Suppose you are earning $57,000 a year as a sales representative for a car dealership at some point you decide to open a used car dealership to sell used cars. You invest $30,000 of savings that have been earning you $2000 per year. And you decide that your new firm will occupy a parking lot that you own and have been renting out for $6000 per year. You hire one clerk to help you in the store, paying her $38,000 annually and annual utilities $23,000. Include your entrepreneurial talent that is worth $8,00.00. A year after you opened the car dealership, you total up your account and find the following

                        (A) Total Sales Revenue $550,00

                        (B) Cost of Buying Used Cars            $300,00

                       (C) Clark Salaries                                  $38,000

                        (D) Total Utilities $23,000

Refer to the above table, what is the Implicit Cost?

Answer 1

Implicit cost

Implicit costs are the opportunity costs of production that do not require a monetary payment. It is a cost that exists without the exchange of cash and is not recorded for accounting purposes.

Implicit costs

Salary Foregone which I was earning as sales representative = $57000

Earnings of Savings that are being foregone = $2000

Foregone Rent that was earned by renting out Parking Lot = $6000

Foregone Entrepreneurial Talent or Income = $800.00

Adding all above

Total Implicit Costs

= $57000 + $2000 + $6000 + $800

= $65800

Note : The figure of Entrepreneurial Talent has been taken as $800 as it is given $800.00 and after decimals 0 have no value. Please adjust accordingly if it is a misprint.