Charles has decided to open a lawnmowing company. To do so, he purchases mowing
ID: 1123788 • Letter: C
Question
Charles has decided to open a lawnmowing company. To do so, he purchases mowing equipment for $4000, why is gasoline ($2.50 in gas is required to mow each yard) and pays a helper $15.00 per yard. Prior to opening the lawn company, Charles earned $3000 as a lifeguard at the neighborhood swimming pool. Assume the money used to purchase the mowing equipment could otherwise have earn 5% per year in the bank and that the mowing equipment depreciates at 25% per year. Charles plans tomorrow 500 yards per year. What is Charles implicit cost of production? Charles has decided to open a lawnmowing company. To do so, he purchases mowing equipment for $4000, why is gasoline ($2.50 in gas is required to mow each yard) and pays a helper $15.00 per yard. Prior to opening the lawn company, Charles earned $3000 as a lifeguard at the neighborhood swimming pool. Assume the money used to purchase the mowing equipment could otherwise have earn 5% per year in the bank and that the mowing equipment depreciates at 25% per year. Charles plans tomorrow 500 yards per year. What is Charles implicit cost of production?Explanation / Answer
Implicit cost is the opportunity cost which is value of next best alternative foregone.
Implicit cost = Income Charles sacrificed in lifeguard job + Interest sacrificed on $ 4000
= 3000 + 5% of 4000 = 3000 + 200 = $ 3200