Question

Assuming the entrepreneur does not pay herself, the $1,000 she could earn as an employee elsewhere is considered          7) _______

A) A fixed cost.          B) An implicit cost.

C) A variable cost.      D) An explicit cost.

Answer 1

This is an implicit costs , this is the opportunity cost for incurred when the firm is making a trade off between the resources. The implicit costs are not marked on the accounting books. The explicit costs are the direct costs that is paid out of the pocket such as wages, salaries, interest, electricity payments etc.... The variable costs are those cost which varies with the output produced, an explicit cost also can be a variable cost. A fixed cost is a cost which does not vary with output.

Here if she were an employee in another she could be earning an income $1000, and this is the cost for the trade off and it is an implicit cost.

Ans: B. An implicit cost.