Question

Bob lives in New York City and runs a business that sells guitars. In an average year, he receives $851,000 from selling guitars. Of this sales revenue, he must pay the manufacturer a wholesale cost of $476,000; he also pays wages and utility bills totaling $281,000. He owns his showroom; if he chooses to rent it out, he will receive $71,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Bob does not operate this guitar business, he can work as an accountant, receive an annual salary of $34,000 with no additional monetary costs, and rent out his showroom at the $71,000 per year rate. No other costs are incurred in running this guitar business.The wages and utility bills that Van pays a) implicit cost or b) explicit cost

Answer 1

Answer:

Wages and utility bills are explicit costs because they directly affect the company profit, have dollar amounts, and will not exist if the company ceases to exist.

Explanation:

Giving the following information:

Bob lives in New York City and runs a business that sells guitars. In an average year, he receives $851,000 from selling guitars. Of this sales revenue, he must pay the manufacturer a wholesale cost of $476,000; he also pays wages and utility bills totaling $281,000.

Wages and utility bills are explicit costs because they directly affect the company profit, have dollar amounts, and will not exist if the company ceases to exist.