
(a)
Identify, the manager’s salary is an implicit cost or an explicit cost.
(a)

Explanation of Solution
Manager’s salary is an explicit cost because salary is a direct cost that is involved in the process of running a business.
Explicit cost: Explicit cost refers to a direct cost incurred by the firm to others in the process of running a business such as wages, rents, materials, and so on. Thus, fixed cost and variable cost are included in the explicit cost.
(b)
Identify, payment to Dell for computers is an implicit cost or an explicit cost.
(b)

Explanation of Solution
Payment to Dell for computers is an explicit cost because this cost involves in spending money.
(c)
Identify, salary forgone is an implicit cost or an explicit cost.
(c)

Explanation of Solution
Salary forgone by the owner of a firm by operating his or her own company is an implicit cost because the person gives up his work in order to start his own business. Since the salary is given up for benefit, it is an implicit cost.
Implicit costs: Implicit cost refers to the costs that have previously been incurred but are not initially shown as a separate expenditure. It denotes an
(d)
Identify, interest forgone is an implicit cost or an explicit cost.
(d)

Explanation of Solution
Interest forgone on a loan that an owner makes to his or her own company is an implicit cost because the person would earn the interest payment if he lent the amount outside the business. Thus, he has given up his interest rate.
(e)
Identify, medical insurance payment is an implicit cost or an explicit cost.
(e)

Explanation of Solution
Medical insurance payment that a company makes for its employees is an explicit cost because it involves spending the money directly.
(f)
Identify, income forgone is an implicit cost or an explicit cost.
(f)

Explanation of Solution
Income forgone while going to college is an implicit cost because the person has given up his income for going to college. Thus, there is a fall in the opportunity cost.
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Chapter 7 Solutions
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