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CMA Foundation · Fundamentals of Business Economics and Management · Cost of Production

Which of the following is an example of an opportunity cost rather than an explicit accounting outlay for a firm that owns its factory building?

The rent the firm could have earned by leasing out its own building is the opportunity cost. It is the value of the best alternative forgone and involves no cash payment, unlike wages, electricity and raw material, which are explicit costs.

  1. AWages paid to workers
  2. BElectricity bill paid for the month
  3. CRent the firm could have earned by leasing the building to othersCorrect
  4. DRaw material purchased on credit

Explanation

Opportunity cost is the value of the next best alternative forgone. The rent forgone by using an owned building itself is an implicit cost, with no cash payment. The other three are actual payments or obligations, hence explicit costs.

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