Josh and Alex work as design engineers creating highend ligh

Josh and Alex work as design engineers creating high-end lighting fixtures. After one particularly enlightened afternoon, they decide to follow their dreams and open a cupcake bakery. Please sort their various costs, listed below, into the correct category. Implicit Costs Not a Cost Explicit Costs Supplies like sugar, butter The salary Alex earned in his previous job designing lighting fixtures Advertising space taken out on a social networking website and baking tr ays The money they pay their neighbor\'s six year old son to deliver cupcakes to their customers The garage space used for baking that can no longer be rented out to a college student.

Solution

Implicit cost is the opportunity cost of a factor of production that is given up by the firm in order to use that particular factor of production.

An explicit cost is one which has to be directly borne by the firm.

The following are the implicit costs.

a. Salary given up the Alex is the opportunity cost of Alex, this is implicit cost.

Explicit cost

1. cost of supplies

2. advertising cost on social networking site.

3. salary given to the neighbor\'s kid.

The garage space does not cost anything because it does not have an opportunity cost as it can no longer be rented to a college student.