Question

Jacques lives in Denver and runs a business that sells guitars. In an average year, he receives $731,000 from selling guitars. Of this sales revenue, he must pay the manufacturer a wholesale cost of $431,000; he also pays wages and utility bills totaling $259,000. He owns his showroom; if he chooses to rent it out, he will receive $8,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Jacques does not operate this guitar business, he can work as an accountant, receive an annual salary of $30,000 with no additional monetary costs, and rent out his showroom at the $8,000 per year rate. No other costs are incurred in running this guitar business.
The rental income Jacques could receive if he chose to rent out his showroom_______.

Answer 1

Answer:

Implicit cost

Explanation:

The rental income Jacques could receive if he chose to rent out his showroom instead of using the showroom for the operation of his guitar business will be classified as an Implicit cost .

An implicit cost in business is a cost that results from the lost opportunity of not using a company's/business own resources excluding cash resources. they are also seen as economic gain/profits sacrificed for not using the company's resources.

Jacques could use the showroom but when he decides to rent it out it becomes an implicit cost even though the rent generates revenue for him.