Which of the following is an example of an implicit cost in a farm business?

a. Wages paid to workers

b. The economic depreciation of capital equipment the farmer owns

c. Rent on a building

d. The cost of fertilizer suppled to a farmer by his/her vendor

Solutions

Expert Solution

An example of an implicit cost in a farm business is b) the economic depreciation of capital equipment the farmer owns.

Implicit costs are often referred to as imputed, implied, or notional costs. It represents an opportunity cost that arises when the farmer uses internal resources without any explicit compensation for the utilization of resources. This means when the farmer allocates his/her resources, he/she always forgoes the ability to earn money off the use of the resources elsewhere. Thus, an implicit cost comes from the use of an asset, rather than renting or buying it.

Rahul Sunny answered 1 year ago

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