Francis and Roselle operate a furniture refinishing business during summer. When

Question

Francis and Roselle operate a furniture refinishing business during summer. When we talked about the total opportunity cost of attending college we noted that there were explicit costs (eg.tuition), and there were implicit costs (eg. foregone income - income you earned if you were working instead of going to school). Which of the costs noted below are an explicit cost of running the business, and which are implicit costs. In the space provided at the end of each statement write Explicit, Implicit, Neither OR Both.

1) Supplies such as paint stripper, varnish, polish, sandpaper etc: _________
2) Wages paid to part-time help: _________
3) A car donated to them by a friend that is used only for transporting furniture: _________
4) Paid summer internships that Francis & Roselle turned down to operate the business: __________

(Provide a short explanation for each choice please)

Explanation / Answer

a) Supplies in the shops are the explicit cost which the shop operators have to pay out of their pocket. paint strippers, varnish, polish, and sandpaper are all the things which they have to buy and will be part of the explicit cost.

b) Wages are an explicit cost. This has to be paid and they are part of running that business hence explicit.

c) As the car is part of running the business it will be considered as an explicit cost.

d) Summer internship which they have given up will be implicit cost. it is not directly related to the furniture business but this is the cost which they have paid (given up) in order to start a business.  

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