Reference no: EM13998743
For each one of the costs below, explain whether the resource cost is explicit or implicit, and give the annual opportunity cost for each one. Assume the owner of the business can invest money and earn 10 percent annually.
a. A computer server to run the firm’s network is leased for $6,000 per year.
b. The owner starts the business using $50,000 of cash from a personal savings account.
c. A building for the business was purchased for $18 million three years ago but is now worth $30 million.
d. Computer programmers cost $50 per hour. The firm will hire 100,000 hours of programmer services this year.
e. The firm owns a 1975 model Clarke-Owens garbage incinerator, which it uses to dispose of paper and cardboard waste. Even though this type of incinerator is now illegal to use for environmental reasons, the firm can continue to use it because it’s exempt under a “grandfather” clause in the law. However, the exemption only applies to the current owner for use until it wears out or is replaced. (Note: The owner offered to give the incinerator to the Smithsonian Institute as a charitable gift, but managers at the Smithsonian turned it down.
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Explain whether the resource cost is explicit or implicit
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