Pete owns a shoe-shine business. Which of the following costs would be implicit costs? (i)
Shoe polish
(ii)
Rent on the shoe stand
(iii)
Wages Pete could earn delivering newspapers
(iv)
Interest that Pete's money was earning before he spent his savings to set up the shoe-shine business
A)(i) and (ii) only
B)(iv) only
C)(iii) and (iv) only
D)(i), (ii), (iii), and (iv)

Question

Quizplus · Accepted Answer

Implicit costs are those that are not paid out of pocket, but rather are opportunity costs. In this case, (i) and (ii) are explicit costs, as they are costs that are directly paid for by Pete's shoe-shine business. However, (iii) and (iv) are implicit costs:
- (iii) represents the wages Pete could have earned if he had not started the shoe-shine business, and is therefore an opportunity cost.
- (iv) represents the potential interest earnings on the money Pete used to set up the business, and is also an opportunity cost.

Pete Owns a Shoe-Shine Business