The Cakery Bakery sells 200 muffins at a price of $2 per muffin. Its explicit costs for producing 200 muffins are $350. If the bakery is earning a normal rate of return, then its implicit costs must be
A) $0.
B) $50.
C) $350.
D) $400.

Question

Quizplus · Accepted Answer

Implicit costs are the opportunity costs of using resources that the firm already owns. The bakery's total revenue from selling 200 muffins at $2 each is $400. Its explicit costs are $350. If the bakery is earning a normal rate of return, its total costs (explicit plus implicit) must equal its total revenue. Therefore, the implicit costs must be $50 ($400 total revenue - $350 explicit costs = $50 implicit costs).

The Cakery Bakery Sells 200 Muffins at a Price of $2