Question

An example of an implicit cost is

a. the cost of raw materials

b. insurance payments

c. the income the owner could make from his/her best alternative employment

d. repair expenses on machinery

Answer 1

There are different types of costs. Explicit Cost, Implicit Cost, Depriciation Cost etc.

Explicit Cost includes, the raw meterial costs. This is the cost of the raw inputs required for a production.

Implicit Cost is the opportunity cost. This is the source of income from any best alternative option.

And, Depriciation cost is the repairing expenses of capital goods, such as machinary.

Hence, Option (a) is not an example of implicit cost. As it is similar with the explicit cost.

Option (b) is insurance payments. It is nothing but the money someone pays for an insurance policy. This is not an opportunity cost.

Hence, Option (b) is also not an example of implicit cost.

Now, Option (c) is the income the owner could make from his/her best alternative employment.

This is exactly the opportunity cost or implicit cost.

Option (c) is an example of implicit cost.

Option (d) is the repair expenses on machinary. This is the depriciation cost.

Hence, option (d) is not an example of implicit cost.

Answer is Option (c).

Hope the explanation is clear to you my friend.