Question

g Bob is a wheat farmer, but also likes to give fiddle lessons. One spring day, Bob faces a choice: spend ten hours planting wheat or spend ten hours giving fiddling lessons. Suppose Farmer Bob charges $35 per hour for his fiddle lessons. Suppose further that, in ten hours, Bob can plant $280 worth of seeds that he expects will yield $600 worth of wheat. (Assume there are no other costs involved with either activity.) After breakfast, Bob decided to spend the day planting. What is the implicit cost Farmer Bob incurred from his ten hours of planting seeds

Answer 1

Answer:

The implicit cost that Farmer Bob incurred from his ten hours of planting seeds is:

= $350

Explanation:

a) Data and Calculations:

Hours spent planting wheat = 10 hours

Hours spent giving fiddling lessons = 10 hours

Charge per hour of fiddle lessons = $35

Total charges of giving fiddling lessons for 10 hours = $350 ($35 * 10)

Cost per hour of planting seeds = $280

Total cost incurred on planting seeds = $2,800 ($280 * 10)

Revenue expected from planting seeds = $6,000 ($600 * 10)

Profit from planting seeds = $3,200 ($6,000 - $2,800)

The implicit cost that Farmer Bob incurred from his ten hours of planting seeds = $350

b) The implicit cost that Bob incurred refers to the opportunity cost of planting seeds, which is the revenue that he could have earned by giving fiddle lessons.  While he incurred a total of $2,800 in planting seeds, which is the explicit cost, Bob also incurred a lost or opportunity cost of $280 because of the forgone alternative.  Therefore, in calculating his economic profit in planting seeds, the $280 opportunity cost will be factored in.

Answer 2

The implicit cost incurred by Farmer Bob is $350.

Implicit cost is the benefit of the next best option a decision maker forgoes when he chooses an option over other alternatives. The implicit cost of choosing to plant seeds is the income Bob would have earned if he taught the fiddle lessons.

Implicit cost = amount earned per hour x total hours

$35 x 10 = $350

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