Jaxon borrows $10,000 from a bank and withdraws $20,000 from his personal savings to open a tattoo parlor. The interest rate is 3 percent for both the bank loan and his personal savings. Jaxon's implicit costs are $900.

Question

Jaxon borrows $10,000 from a bank and withdraws $20,000 from his personal savings to open a tattoo parlor. The interest rate is 3 percent for both the bank loan and his personal savings. Jaxon's implicit costs are $900.
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Quizplus · Accepted Answer

Jaxon's implicit costs are the opportunity costs of using his own resources, in this case, the interest he could have earned on his personal savings. With a 3 percent interest rate on $20,000, his implicit costs would be $600 (0.03 * $20,000), not $900.

Jaxon Borrows $10,000 from a Bank and Withdraws $20,000 from His