(Scenario: Betty's Cookie Shop)Use Scenario: Betty's Cookie Shop.Given the information provided,Betty's implicit costs are: Scenario: Betty's Cookie Shop
Betty runs a cookie shop where she sells cookies for $1 each.She employs five people,each of whom worked a total of 500 hours last year;she paid them $10 per hour.Her costs of equipment and raw materials add up to $75,000.Her business ability is legendary,and other companies have offered to pay Betty $100,000 to come to work for them.She also knows she could sell her cookie shop for $150,000.The bank in town pays an annual interest rate of 3% on all funds deposited with it.

Question

Quizplus · Accepted Answer

Betty's implicit costs include her salary if she worked elsewhere and the interest she forgoes by not selling her shop and putting the money in the bank. The offered salary of $100,000 and the potential sales price of $150,000 represent the opportunity cost of Betty's decision to run her cookie shop. The bank's annual interest rate of 3% is the cost she incurs by not depositing the sales price of her shop into the bank.