Scenario 12-8
Ellie has been working for an engineering firm and earning an annual salary of $80,000.She decides to open her own engineering business.Her annual expenses will include $15,000 for office rent,$3,000 for equipment rental,$1,000 for supplies,$1,200 for utilities,and a $35,000 salary for a secretary/bookkeeper.Ellie will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $500.
-Refer to Scenario 12-8.Ellie's annual implicit costs will equal
A) $55,200.
B) $75,200.
C) $80,500.
D) $165,700.

Question

Quizplus · Accepted Answer

Implicit costs are the opportunity costs associated with using resources owned by the firm, including the owner's time and financial resources. In this scenario, Ellie's annual implicit costs will include the interest she could have earned on her $20,000 certificate of deposit ($500) plus the salary she gave up by leaving her job ($80,000). Therefore, her total implicit costs will be $80,000 + $500 = $80,500.

Scenario 12-8 Ellie Has Been Working for an Engineering Firm and Earning