Question

Sam quits his job as an airline pilot and opens his own pilot training school. He was earning $40,000 as a pilot. He withdraws $10,000 from his savings where he was earning 6 percent interest and uses the money in his new business. He uses a building he owns as a hanger and could rent it out for $5,000 per year. He rents a computer for $1,200, buys office supplies for $500, rents an airplane for $6,000, pays $1,300 for fuel and maintenance, and hires one worker for $30,000. Sam's total revenue from pilot training classes equaled $90,400. Sam's implicit costs for this year are equal to:
a, $84,400
b, $39,000
c, $55,000
d, $45,600

Answer 1

Answer:

The implicit cost of Sam will be D) $45,600.

Explanation:

Implicit cost refers to the opportunity cost, in this question the opportunity cost for Sam would be the salary he is missing by starting his own business, it will also include the interest he would have gained on the savings account and also the building he owns which he could have given on rent and earned some money on it .

IMPLICIT COST =

SALARY + INTEREST ON SAVINGS ACCOUNT + RENT

= $40,000 + $600 + $5000

= $45,600