Which of the following is an example of an implicit cost? (i)
The owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street brokerage firm
(ii)
Interest paid on the firm's debt
(iii)
Rent paid by the firm to lease office space
A)(ii) and (iii) only
B)(i) and (iii) only
C)(i) only
D)(iii) only

Question

Quizplus · Accepted Answer

An implicit cost is a cost that is not incurred or recorded as a separate expense but is represented by an opportunity cost, or the potential benefits of the next best alternative foregone. In this case, the owner of the firm forgoing an opportunity to earn a large salary working for a Wall Street brokerage firm represents an implicit cost because it is the opportunity cost of owning a business. The interest paid on the firm's debt and the rent paid by the firm to lease office space are both explicit costs, as they are recorded and incurred as separate expenses.

Which of the Following Is an Example of an Implicit