Which of the following best describes an implicit cost?

• A. A tax paid by the firm to the government
• B. The opportunity cost of using resources owned by the firm for which no direct payment is made
• C. The cost of hiring labor from outside the firm
• D. A payment made by a firm to purchase raw materials

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of costs in microeconomics, which are generally divided into explicit and implicit costs. Explicit costs involve direct monetary payments made by the firm, such as wages, rent, and materials.
2. Step 2: Define implicit costs as the opportunity costs of using resources that the firm already owns, for which no direct payment is made. These costs represent the income the firm foregoes by using its own resources instead of renting or selling them.
3. Step 3: Analyze each option given in the problem: a tax paid to the government is an explicit cost because it involves a direct payment; hiring labor from outside is also an explicit cost; purchasing raw materials requires direct payment, so it is explicit as well.
4. Step 4: Identify that the opportunity cost of using resources owned by the firm without direct payment fits the definition of an implicit cost, as it reflects the value of the next best alternative use of those resources.
5. Step 5: Conclude that the best description of an implicit cost is the opportunity cost of using resources owned by the firm for which no direct payment is made.