Asked by Jalen Denoncourt on Apr 24, 2024
Verified
Which of the following is most likely to be an implicit cost for Company X?
A) Forgone rent from the building owned and used by Company X.
B) Rental payments on IBM equipment.
C) Payments for raw materials purchased from Company Y.
D) Transportation costs paid to a nearby trucking firm.
Implicit Cost
The monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market; equal to what the resource could have earned in the best-paying alternative employment; includes a normal profit.
Forgone Rent
The potential income lost by choosing to use a property or resource in a way that is not financially optimal, such as using land for personal use instead of renting it out.
Rental Payments
Regular payments made by a tenant to an owner for the use of the owner's property or land.
- Understand the concept of implicit costs and their relevance to business economics.
Verified Answer
EW
Elizabeth WilhelmsonMay 02, 2024
Final Answer :
A
Explanation :
Forgone rent from a building owned and used by Company X is an implicit cost because it is the opportunity cost of using the building instead of renting it out to another company and earning rent as revenue. Implicit costs are the opportunity costs of using a resource that could be used in an alternative way. B, C, and D are explicit costs because they involve actual payments made by Company X for rental payments, raw materials, and transportation costs.
Learning Objectives
- Understand the concept of implicit costs and their relevance to business economics.