Frank owns a dog-grooming business. Which of the following costs would be implicit costs? (i) dog shampoo
(ii) rent on the storefront
(iii) wages Frank could earn as a substitute elementary-school teacher
(iv) interest that Frank's money was earning before he spent his savings to set up the dog
Grooming business
A) (i) and (ii) only
B) (iv) only
C) (iii) and (iv) only
D) (i), (ii), (iii), and (iv)

Question

Frank owns a dog-grooming business. Which of the following costs would be implicit costs? (i) dog shampoo
(ii) rent on the storefront
(iii) wages Frank could earn as a substitute elementary-school teacher
(iv) interest that Frank's money was earning before he spent his savings to set up the dog­
Grooming business
A) (i) and (ii) only
B) (iv) only
C) (iii) and (iv) only
D) (i), (ii), (iii), and (iv)

Quizplus · Accepted Answer

Implicit costs are opportunity costs that are not actual cash expenditures. From the given costs, (iii) wages Frank could earn as a substitute elementary-school teacher and (iv) interest that Frank's money was earning before he spent his savings to set up the dog-grooming business are implicit costs. Dog shampoo and rent on the storefront are explicit costs, which are actual cash expenditures. Therefore, the answer is (iii) and (iv) only.

Frank Owns a Dog-Grooming Business