Question

Jessica wants to expand her business and use the 10 acre property she owns and rents to a local sheep rancher for $10,000/year, to build a mall for $4 million. Jessica’s total implicit costs of the expansion plan are ______.
A. the foregone rent and the cost of the mall.
B. the foregone $10,000 from the sheep rancher.
C. the cost of construction of mall and fixed costs of the mall

Answer 1

Answer:

Option (b) is correct.

Explanation:

Implicit costs are also known as the opportunity costs. Opportunity costs refers to the cost associated with the choice. Opportunity cost also refers to the benefit that is foregone by selecting or choosing some other alternative.

Here, in our case, there is loss of income (of $10,000 per year) from renting that property to a local sheep rancher by choosing to expand her business.