CA Foundation · Business Economics · Theory of Production and Cost
Which of the following is an example of an implicit cost for a firm owned by Meera, who runs her own boutique in a shop that she owns?
The rent Meera could have earned by letting out her own shop is an implicit cost. Implicit costs are the imputed opportunity cost of owner-supplied resources and involve no cash payment, whereas wages, electricity and fabric purchases are explicit costs paid to outsiders.
- AWages paid to the tailors employed
- BThe rent she could have earned by letting out her own shopCorrect
- CElectricity bill paid for the boutique
- DCost of fabric purchased from suppliers
Explanation
Implicit costs are the imputed value of resources owned and used by the owner herself, with no cash payment. The rent forgone on the owned shop is such a cost. Wages, electricity and fabric are explicit costs because money is actually paid out.
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