Which of the following is most likely to be an implicit cost for Company X?

• A. The foregone salary that the owner could have earned working elsewhere
• B. Payments made to suppliers for raw materials
• C. Interest paid on a business loan
• D. Monthly rent paid for office space

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of implicit costs. Implicit costs represent the opportunity costs of using resources owned by the firm, which do not involve direct monetary payment but reflect foregone alternatives.
2. Step 2: Identify explicit costs. These are direct, out-of-pocket payments such as payments to suppliers, interest on loans, and rent for office space.
3. Step 3: Analyze each option to determine if it involves a direct payment (explicit cost) or a foregone opportunity (implicit cost).
4. Step 4: Recognize that the foregone salary the owner could have earned working elsewhere is an implicit cost because it represents income the owner sacrifices by running the business instead of working for another employer.
5. Step 5: Conclude that among the options, the foregone salary is the implicit cost, while the others are explicit costs.