(Scenario: Jillian's Cupcake Shop) Use Scenario: Jillian's Cupcake Shop.
Scenario: Jillian's Cupcake Shop
Jillian runs a cupcake shop where she sells cupcakes 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 Jillian $100,000 to come to work for them. She also knows she could sell her cupcake shop for $150,000. The bank in town pays an annual interest rate of 3% on all funds deposited with it. Given the information provided, Jillian's implicit opportunity costs are:
A)her salary if she worked elsewhere and interest that she forgoes by not selling her shop and putting the money in the bank.
B)the cost of labor, equipment, and raw materials.
C)the revenue she receives from selling cupcakes plus the cost of labor, equipment, and raw materials.
D)revenue she receives from selling her cupcakes and her labor costs.

Question

Quizplus · Accepted Answer

Implicit opportunity costs refer to the benefits that could have been obtained if the resources were used for the next best alternative. In this case, Jillian's implicit opportunity costs are the salary she could have earned if she worked for another company and the interest she could have earned if she sold her shop and put the money in the bank. These costs are not explicitly stated but are implied by the scenario. Option B and C refer to explicit costs, which are already accounted for in Jillian's accounting records. Option D only includes one aspect of Jillian's implicit opportunity costs, which is her labor costs, but does not include the interest forgone by not selling her shop. Therefore, the best choice is A.