Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

A) Payments of wages to its office workers.
B) Rent paid for the use of equipment owned by the Schultz Machinery Company.
C) Use of savings to pay operating expenses instead of generating interest income.
D) Economic profits resulting from current production.

Question

Leyla Avagyan · Accepted Answer

Final Answer : C, Explanation :  Implicit costs are opportunity costs that arise from using resources owned by the firm instead of selling them in the market. Thus, using savings to pay operating expenses instead of earning interest income is an implicit cost. Option A is a explicit cost because it involves direct payment of wages to employees. Option B is also an explicit cost because it involves direct payment of rent to Schultz Machinery Company. Option D is not relevant to the concept of implicit cost because it talks about economic profits resulting from current production.

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