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

• A. The rent paid for factory space
• B. The foregone salary of the business owner who works full-time in the firm
• C. The wages paid to hired employees
• D. The payment for raw materials

Answer: (B)

Verified step by step guidance

1. Understand the difference between explicit and implicit costs: Explicit costs involve direct monetary payments made by the firm, such as wages, rent, and payments for raw materials.
2. Recognize that implicit costs represent the opportunity costs of using resources owned by the firm, which do not involve direct cash payments but reflect foregone alternatives.
3. Analyze each option: rent paid for factory space, wages paid to hired employees, and payment for raw materials are explicit costs because they involve actual payments.
4. Identify that the foregone salary of the business owner who works full-time in the firm is an implicit cost because it represents the income the owner sacrifices by working in their own business instead of elsewhere.
5. Conclude that the implicit cost is the foregone salary of the business owner, as it reflects the opportunity cost of the owner's time and effort.