Question

The Cakery Bakery sells 200 muffins at a price of $2 per muffin. Its explicit costs for producing 200 muffins are $350. If the bakery is earning a normal rate of return, then its implicit costs must be A) $0. B) $50. C) $350. D) $400.

Answer 1

B

Step-by-step explanation:

Explicit cost is the actual cost incurred in running a business. They include wages, cost of raw materials

Implicit cost is also known as opportunity cost.

Opportunity cost or implicit is the cost of the option forgone when one alternative is chosen over other alternatives.

The normal rate of return is when cost is equal to revenue. So, profit is zero.

Economic profit = Revenue -explicit cost - implicit cost

0 = (200 x $2) - $350 - implicit cost

implicit cost = $50