Which of the following items represents an implicit cost to a business owner?

• A. Rent paid for office space
• B. Wages paid to employees
• C. The salary the owner could earn working elsewhere
• D. Payments made for raw materials

Answer: (C)

Verified step by step guidance

1. Understand the difference between explicit and implicit costs. Explicit costs are direct, out-of-pocket payments made by the business, such as rent, wages, and payments for raw materials.
2. Recognize that implicit costs represent the opportunity costs of using resources owned by the business owner, which do not involve direct monetary payment but reflect foregone alternatives.
3. Identify that rent paid for office space, wages paid to employees, and payments for raw materials are explicit costs because they involve actual cash outflows.
4. Note that the salary the owner could earn working elsewhere is an implicit cost because it represents the income the owner sacrifices by choosing to run their own business instead of working for someone else.
5. Conclude that among the options, the implicit cost is the salary the owner could earn working elsewhere, as it reflects the opportunity cost of the owner's time and effort.