Question

Angus works as a dairy farmer and loves his work. However, because the dairy business has not been doing well lately, Angus is considering changing careers. He could work as a technician at the local dairy plant and earn $27,000/year. Angus decides to make a list of the costs of staying in business as a farmer and asks you for help. Please classify each of Angus's costs as explicit or implicit.a. the wage he pays to his hired hand.b. the feed he buys for his cows.c. the gas he uses for his farm truck.d. the cost of veterinary care for his cows.e. the time it takes him to milk all of his cows.f. the 27000 annual salary he would receive from working at the dairy plant.

Answer 1

Answer:

A) the wage he pays to his hired hand. EXPLICIT COST

B) the feed he buys for his cows. EXPLICIT COST

C) the gas he uses for his farm truck. EXPLICIT COST

D) the cost of veterinary care for his cows. EXPLICIT COST

E) the time it takes him to milk all of his cows. IMPLICIT COST

F) the $27,000 annual salary he would receive from working at the dairy plant. IMPLICIT COST

Explanation:

Opportunity costs are the costs incurred (or benefits lost) from choosing one alternative activity or investment over another.

Explicit costs = accounting costs, or costs that you must pay for in money.