Junpei needs $25,000 to start up his own business and get it off the ground. He can either withdraw the money from his savings account, where he currently earns 3 percent, or he can take out a loan for $25,000 and pay 5 percent interest. Junpei should compare _____ and choose to _____. A)the implicit cost of $750 to the explicit cost of $1,250; use his savings B)the implicit cost of $750 to the explicit cost of $1,250; borrow the money C)the explicit cost of $750 to the implicit cost of $1,250; use his savings D)the explicit cost of $25,750 to the explicit cost of $26,250; borrow the money

Question

Quizplus · Accepted Answer

The implicit cost of using his savings is the interest he would forgo, which is 3% of $25,000 ($750). The explicit cost of borrowing the money is the interest he would pay on the loan, which is 5% of $25,000 ($1,250). Comparing these, it's cheaper to use his savings.

Junpei Needs $25,000 to Start Up His Own Business and Get