Homework Answers
An implicit cost can be defined as the opportunity cost equal to what a firm give up for using the factor of production which it already owns and thus does not pay rent for it.Hence income tax payment is not a return on the investment.
An explicit cost is defined as the direct payment made to others for using the resources and running a business. For instance, wage, rent and materials.Hence income tax payment is not a return on the investment.
A return on the investment is the earning on the investment on money market fund=12% of 100,000
=0.12*100,000
=$1000
The implicit cost of the business is $40,000 for the entrepreneur’s time plust $1,000 for the entrepreneur’s fund.
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