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Which of the following is the best example of an explicit cost?out of these 4 which one...

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skyler89 | Student, College Sophomore | Honors

Posted October 23, 2012 at 1:31 PM via web

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Which of the following is the best example of an explicit cost?

out of these 4 which one is the best example of explicit cost?

an employee's wages

entrepreneurial income

accounting profit

foregone interest

Tagged with economics, explicit costs

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted October 23, 2012 at 1:49 PM (Answer #1)

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Of these, the best example of an explicit cost is the first one; an employee’s wages.

Explicit costs are those costs that the owner of a firm has to pay to other people.  This covers everything that we would normally think of as a cost of doing business.  It covers such things as the wages paid to employees, the rents paid on buildings, and the costs of the materials used to make a product.  This is in contrast to implicit costs, which are the value of things (such as the wages they could be making in a different job) that the owner of a firm foregoes in order to run the firm.  Of the choices given, an employee’s wages are most clearly an example of an explicit cost.

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