Suppose a firm has the following expenditures per day: $240 for wages, $150 for materials, and $80 for equipment rental. The owner of the firm owns the building in which it operates. If the firm were not operating in the building, he could rent the building for $70 per day. Total daily revenue is $600. 1. What are the daily accounting costs for the firm described above?
2. What are the daily explicit costs for the firm described above?
3. What are the daily implicit costs for the firm described above?

1. $470

2. $470

3. $70

Explanation:

Accounting costs or explicit cost are the actually costs incurred in running the business. They include :

1. $240 for wages

2. $150 for materials

3. $80 for equipment rental.

Total = $470

Implicit costs are opportunity cost. They are the costs of the next best option forgone when one alternative is chosen over other alternatives. The amount that could have been earned as rent is the implicit cost. So implicit cost is $70

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