Which of the following is most likely to be an implicit cost of production?

• A. Payments made for raw materials
• B. The foregone salary an entrepreneur could earn working elsewhere
• C. Interest paid on a business loan
• D. Wages paid to hired workers

Answer: (B)

Verified step by step guidance

1. Understand the difference between explicit and implicit costs: Explicit costs involve direct monetary payments made by a firm, such as wages, raw materials, and interest on loans. Implicit costs represent the opportunity costs of using resources owned by the firm, which do not involve direct payments.
2. Identify explicit costs in the options: Payments for raw materials, interest paid on a business loan, and wages paid to hired workers are all explicit costs because they involve actual cash outflows.
3. Recognize that implicit costs are related to the value of the next best alternative use of resources owned by the entrepreneur, such as the salary they forego by not working elsewhere.
4. Match the option that represents an implicit cost: The foregone salary an entrepreneur could earn working elsewhere is an opportunity cost and does not involve a direct payment, making it an implicit cost.
5. Conclude that the foregone salary is the implicit cost of production among the given options.