Question

Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total implicit costs for the year were:

Answer 1

Answer: $35,000

Explanation:

Implicit costs can be described as opportunity cost : the cost that could have accrued to a resource owned by a firm if it had been put to another use.

Ralph could have earned $35,000 if he were employed elsewhere. Therefore, the $35,000 is the opportunity cost of owning his pizza hut. It is the implicit cost.

The other costs in the question are explicit costs.

I hope my answer helps you.