Mike wants to open his own repair shop, and is considering using his savings of $30,000 to get it started. He is currently earning 3 percent interest on his savings. His friend Bob calls him and asks to borrow $30,000 to start up a bagel shop; Bob offers to pay him 5 percent interest if he loans him the money. If Mike were to use the money to open his own repair shop, how can he accurately account for his costs?
A. Mike must consider the $900 in forgone interest on his savings as an explicit cost.
B. Mike must consider the $1,500 in forgone interest from loaning the money to Bob as an implicit cost.
C. Mike must consider the $1,500 in forgone interest from loaning the money to Bob as an explicit cost.
D. Mike must consider the $900 in forgone interest on his savings as an implicit cost.
Answer: B
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