Which of the Following Is an Implicit Cost

question 29

Multiple Choice

Which of the following is an implicit cost?

• A)salaries paid to owners who work for their own firm
• B)interest on money borrowed to finance equipment purchases
• C)cash payments for raw materials
• D)wages paid to hourly employees
• E)foregone rent on office space owned and used by the firm

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Definitions:

Capital Employed

The total amount of capital used for the acquisition of profits by a firm or project, including the value of all assets employed in a business.

Production Function

A formula that specifies the output generated by a firm from varying combinations of factor inputs.

Marginal Cost

The supplementary expense incurred by fabricating one more unit of a product or service.

Diminishing Returns

An economic principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot continue to increase if other variables remain constant.