Question

The concept of opportunity cost is helpful to the employer in calculating the ________________.

• A. implicit costs
• B. imputed costs
• C. explicit cost
• D. Either (A) or (B)

Answer 1

Answer: (D)

Either (A) or (B)

Implicit costs refers to the estimated value of inputs owned by the firm and used by its own production unit.

For example, a farmer may own land, and use this in the production of crops. However, as the owner of land he is entitled to receive rent on the land. This benefit of earning rent is foregone when the farmer chooses to produce crops. Thus this opportunity cost acts as an implicit or imputed cost.