Question
To answer questions A17-A20 , use the following information for Werner's Wonderful Wrstchen, a hot dog stand that has been a downtown institution for 50
To answer questions A17-A20, use the following information for Werner's Wonderful Wrstchen, a hot
dog stand that has been a downtown institution for 50 years.
Cost of supplies and other materials $10,000
Rent $20,000
Wages paid $25,000
Interest on a $10,000 bank loan $ 1,000
Werner's salary offer from a competitor $20,000
A17. Which one of the following is the total explicit (accounting) cost of running Werner's Wonderful
Wrstchen?
(a) $11,000.
(b) $36,000.
(c) $56,000.
(d) $76,000.
A18. Which one of the following is the total opportunity (economic) cost of running Werner's
Wonderful Wrstchen?
(a) $36,000.
(b) $56,000.
(c) $75,000.
(d) $76,000.
A19. If Werner pays off the bank loan and invests $10,000 of his own money in the business, thus
giving up the chance to earn $1,000 in interest elsewhere, which one of the following will occur?
(a) Accounting and economic costs will both rise by $1,000.
(b) Accounting and economic costs will both fall by $1,000.
(c) Accounting cost will fall by $1,000, but economic cost will not change.
(d) Accounting cost will not change, but economic cost will fall by $1,000.
A20. If Werner has a job offer of $50,000 per year to manage his competitor's business, which one of
the following will occur?
(a) The implicit cost of staying in business will rise.
(b) The explicit cost of staying in business will rise.
(c) The implicit cost of staying in business will fall.
(d) The explicit cost of staying in business will fall.
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