Amanda, age 6, opens a lemonade stand.She makes all the lemonade from a mix she found in her parents' pantry.Her stand is an old box she found in the garage.The pitcher and paper cups were taken from the kitchen.Which of the following is true?
A)The opportunity cost of the lemonade is zero.
B)The only opportunity cost of the lemonade is Amanda's time.
C)Amanda's explicit costs are zero.
D)The implicit costs of Amanda's lemonade are zero.
E)Whatever revenue Amanda gets will be pure economic profit.

Question

Quizplus · Accepted Answer

Amanda is not purchasing any inputs for her lemonade stand, so her explicit costs are zero. However, there is still an opportunity cost to her time, and she is utilizing resources that could be used for other purposes (such as the mix, box, pitcher, and cups). The implicit costs of these resources are not zero. Additionally, even if Amanda earns revenue from her lemonade stand, she still incurs opportunity costs and therefore may not earn pure economic profit.

Amanda, Age 6, Opens a Lemonade Stand