Question

A car payment is an example of what type of cost (assuming you pay the same amount each month)?

A) Implicit cost

B) Variable cost

C) Explicit Cost

Answer 1

An implicit cost can be defined as the opportunity cost equal to what a firm give up for using the factor of production which it already owns and thus does not pay rent for it.

An explicit cost is defined as the direct payment made to others for using the resources and running a business. For instance, wage, rent and materials.

The variable cost is that cost which changes with the change it the output level.

Since a car payment is an example of what type of cost (assuming you pay the same amount each month, then it cannot be variable cost because it is fixed.

This is not an implicit cost because payment is made to outsider, so it will be an example of explicit cost.

Hence option C is the correct answer.